simplifying medi-cal enrollment: options for the income test

Simplifying Medi-CalEnrollment: Options for

the Income Test

Prepared by The Lewin Group

June 2003 Repo

rt

The Medi-Cal Policy Institute, established in 1997 by

the California HealthCare Foundation, is an independent

source of information on the Medi-Cal and Healthy

Families programs. The Institute seeks to facilitate and

enhance the development of effective policy solutions

guided by the interests of the programs’ consumers.

The Institute conducts and commissions research,

distributes information about the programs and the

people they serve, highlights the programs’ successes,

and identifies the challenges ahead. It collaborates

with a broad spectrum of policymakers, researchers,

providers, consumer representatives, and other

stakeholders who are working to create higher-quality,

more efficient Medi-Cal and Healthy Families programs.

Prepared for theMedi-Cal Policy Institute

by

Lisa Chimento, Moira Forbes, Joel Menges, and Anna Theisen

The Lewin Groupand

Nalini PandeMedi-Cal Policy Institute

Simplifying Medi-Cal Enrollment: Options for

the Income Test

June 2003

AcknowledgmentsFunding for this project was provided by the California HealthCare Foundation’s Medi-Cal PolicyInstitute.

The Lewin Group would like to extend a special thanks to the many people who participated ininterviews and responded to our multiple requests for information.

We thank the many county staff who provided us with their insights and suggestions for improvingthe Medi-Cal program, including Kathy Harwell of Stanislaus County, Joyce Cooper and RhondaBoykin of Alameda County, Jenn Fossum of Shasta County, and Joan Zinser of San Diego County.We would particularly like to thank Colleen Moskal of Los Angeles County, John Vera of SanJoaquin County, and Sandra Baldwin of Contra Costa County, along with their respective countystaff members, for hosting site visits during April 2002 and answering our many follow-up questions.We thank Barbara Kelsey and Lorrie Taylor of the Interim Statewide Automated Welfare System(ISAWS) Consortium Administrative Support Team for their assistance in obtaining data on Medi-Cal applications.

We also thank the following Department of Health Services staff for their time and assistance: StanRosenstein, Maura Donovan, Richard Brantingham, Bill Walsh, Pilar Williams, Marlene Ratner,Sharyl Shanen-Raya, and Tom Welch.

Invaluable assistance over the course of the project was provided by Cathy Senderling of the CountyWelfare Directors Association, Pat Daley of the Centers for Medicare and Medicaid Services, JanetteLopez of the Healthy Families Program, Deena Lahn of the Children’s Defense Fund, Kristen Testaof the Children’s Partnership, and Richard Brown of the UCLA Center for Health Policy Research.

Finally, we would like to thank Kristen Testa, Health Program Manager, The Children’s Partnership;Jerry Kominski, Professor, Department of Health Services, UCLA School of Public Health; andMaura Donovan, Chief of Fiscal Analysis, California Department of Health Services, for providingongoing guidance and peer review of the research, methods, and findings. The authors, however,remain solely responsible for the content and findings.

Copyright © 2003 Medi-Cal Policy InstituteISBN 1-932064-46-X

Medi-Cal Policy Institute476 Ninth StreetOakland, CA 94607tel: (510) 286-8976fax: (510) 238-1382www.medi-cal.org

A project of the

Additional copies of this and other publications can be obtained by calling the Medi-Cal Policy Instituteat (510) 286-8976 or by visiting the Web site (www.medi-cal.org).

Contents

Executive Summary 1

I. Introduction 9

California’s Path to Simplification 10

Next Steps Toward Simplification 11

II. Overview of the Income Test 13

A. Eligibility Groups and Income Standards 14

B. Income Methodology: Counting Income 16

C. Income Documentation and Verification 19

D. Program Integrity 25

III. Income Test Simplification Options 27

A. Self-Certification of Income 27

B. Self-Certification of Income Deductions 31

C. Shift Income Calculation from Net to Gross Methodology 34

D. Estimate of Potential Impacts of Self-Certification of Income 37

IV. Conclusion 43

List of Tables

Table ES-1 Best Estimates of Potential Enrollment, Medical Cost, and AdministrativeCost Impacts of Allowing Self-Certification of Income for 1931(b) OnlyFamilies

Table 1 Federal Poverty Levels (FPLs), 2003

Table 2 Annual Income Limits for Selected Medi-Cal Eligibility Groups

Table 3 Documentation of Income and Disregards

Table 4 Medi-Cal Application Deductions, Selected Counties, July 2002

Table 5 Take-Up Rates Used for Self-Certification of Income

Table 6 Enrollment and Medical Cost Impacts of Self-Certification of Income

Table 7 Projected Administrative Impacts of Self-Certification of Income

Table 8 Best Estimates of Potential Enrollment, Medical Cost, and AdministrativeCost Impacts of Allowing Self-Certification of Income for 1931(b) OnlyFamilies

Simplifying Medi-Cal Enrollment: Options for the Income Test 1

Executive Summary

According to a recent survey of California residents, some 820,000 people may be eligible forMedi-Cal (California’s Medicaid program) but are currently uninsured.1 Two recent surveys ofCalifornia families eligible for but not enrolled in public health programs found that the com-plexity of the eligibility determination process remains a primary barrier to enrollment. Cali-fornia’s experience is not unique. Many states grapple with the same challenge: designingeligibility processes that facilitate enrollment while maintaining program integrity. For manystates, simplification of the enrollment process has helped those who are eligible to enroll inhealth insurance programs. Simplification has also reduced administrative burdens without in-creasing the number of erroneous determinations.

After several years of budget surpluses, California, like most states, is now facing a substantialbudget gap, and there is tremendous pressure on state and county governments to reducespending. Any further efforts to simplify the program must account for this new fiscal reality.In particular, efforts to simplify the program that also reduce state and county administrativecosts are likely to be the ones of greatest interest.

To assist California policymakers, the Medi-Cal Policy Institute commissioned The LewinGroup to assess the impacts of several strategies to simplify the Medi-Cal eligibility and enroll-ment process. Specifically, The Lewin Group reviewed simplification options relating to theincome and assets (or resources) components of Medi-Cal enrollment. This report discussesthe following three strategies for simplifying the income portion of the eligibility determi-nation process:

1. Brown, R., N. Ponce, T. Rice, S. A. Lavarreda. “The State of Health Insurance in California: Findings from the2001 California Health Interview Survey.” June 2002, pp. 43-46. The researchers estimated that 355,000uninsured children may be eligible for Medi-Cal, and 413,000 parents and 52,000 other uninsured adults whoare not custodial parents may be eligible for Medi-Cal.

1. Allowing applicants to self-certify their income (instead of providing docu-mentation);

2. Allowing applicants to self-certify their income deductions; and

3. Changing the methodology used to count income from a net income method-ology to a gross income methodology.

In addition, this study also provides cost estimates of the enrollment and administrative impactof self-certification of income, the option expected to provide the greatest potential benefit toapplicants and eligibility workers. This report is the companion piece to a study of simplifica-tion options relating to the elimination and simplification of the assets test titled SimplifyingMedi-Cal Enrollment: Options for the Assets Test. A summary report, Simplifying Medi-Cal En-rollment: Opportunities and Challenges in Tight Fiscal Times, highlights key findings from thetwo main reports. A description of the methodology used to estimate the enrollment and costimpacts of the various modeling options is provided in the companion report, SimplifyingMedi-Cal Enrollment: Technical Report on the Assets and Income Tests.

The Medi-Cal Income Test

Medicaid does not cover all low-income people. Eligibility depends on several factors, one ofwhich is income. Income is determined by applying an income test that has two components:the income methodology and the income standard. Eligibility workers use an income method-ology to determine which types of income to count and whether the applicant is entitled todeduct any expenses. Workers then compare the countable income amount to the income stan-dard (maximum allowable income) for California’s 165 eligibility groups, to determine whetherthe applicant’s countable income qualifies him or her for Medi-Cal. Applying the complicatedrules for income is one element of the overall Medi-Cal enrollment process, which has manycomplexities that pose challenges for both applicants and county eligibility workers.

Potential Impacts of Changes to the Medi-Cal Income Test

This study assessed the specific impacts of each of the three income simplification optionslisted above on program enrollment, administration, and program integrity. In addition, this study also provides cost estimates of the enrollment and administrative impact of self-certification of income, the option expected to provide the greatest potential benefit to appli-cants and eligibility workers. This type of modeling effort is not an exact science. Medi-Caleligibility data do not capture the degree to which applicants are dropping out of the processdue to the “hassle factor” of documenting their assets and/or income. Data do not exist re-garding the degree to which simplifying the process will result in more people being willing tocome forward to apply. Because so many factors continuously influence Medicaid enrollmentlevels, states that have implemented simplification measures are unable to determine the en-rollment impacts of their own initiatives. For all these reasons, modeling the enrollment

2 Medi-Cal Policy Institute2 Medi-Cal Policy Institute


impact of simplification options such as self-certification of income requires reliance on as-sumptions and various imperfect data sources. The approach has involved obtaining the datathat are most applicable, identifying and adjusting for the shortcomings of these data sources,relying on experience and expertise in the public health insurance arena to develop reasonableassumptions, and using alternate modeling approaches to validate these assumptions.

These analyses were conducted in late 2002 using the program policies in place in Californiaand other states at that time. Because the bulk of Medi-Cal applicants and beneficiaries arefamilies and children, this report focuses on the application and enrollment process for a“typical” family Medi-Cal application for the 1931(b) Only eligibility category.2 The 1931(b)Only group covers families who do not receive Temporary Assistance to Needy Families(TANF) benefits. TANF is the state-federal welfare program that replaced Aid to Families withDependent Children (AFDC) in 1996. This program is known as CalWORKs (CaliforniaWork Opportunity and Responsibility to Kids) in California. These 1931(b) Only familiesinclude those who would have been eligible for AFDC-linked Medi-Cal if AFDC were still ineffect; families that decide not to enroll in CalWORKs even though they may be eligible forassistance; and families with incomes below the federal poverty level but higher than the CalWORKs limits.

Findings

1. Self-Certification of Income

California requires applicants to provide documentation of earned income (e.g., pay stub, stateor federal tax return). Self-employed applicants can provide tax returns or recent profit-and-loss statements, or they can document business receipts and expenses. In some cases, appli-cants may not have the documentation required by the state. In some of these cases, applicantsmay self-certify their income, as a last resort, by signing a statement attesting to the value oftheir current income. Current California Medi-Cal regulations require counties to make anattempt to verify information before allowing self-certification.

California can change its policy to allow self-certification of income at the time of applicationand at the time of eligibility redetermination. By allowing self-certification of income, appli-cants would not need to provide any documentation of their income and would certify, underpenalty of perjury, that the self-reported income information is correct. The eligibility workerwould then determine whether the applicant’s income was above or below the income limit forthe relevant eligibility group and family size.

▪ Enrollment impacts. The experience of some states suggests that simplifyingthe income test through self-certification can increase enrollment by making

2. Because these rules are described in section 1931(b) of the Social Security Act, this eligibility category is gener-ally referred to as “1931(b)” for families that receive cash benefits and Medi-Cal, and “1931(b) Only” for fam-ilies that receive only Medi-Cal.

4 Medi-Cal Policy Institute

it easier for eligible people to successfully complete the process. It may alsoencourage some people who may be eligible but have not applied due to per-ceived difficulties in the eligibility process to come forward. Finally, reducingthe documentation requirements by encouraging beneficiaries to self-certifytheir income would also help people and families who are currently eligible forMedi-Cal to successfully complete the eligibility redetermination process andretain their coverage.

Modeling of the potential enrollment impact of allowing applicants to self-certify their income at the time of application was conducted using the sameapproach that was used to model the impact of self-certification of assets.Based on the modeling, an estimated 1.5 percent of the uninsured, 1931(b)Only eligible (but unenrolled) people would apply for Medi-Cal and be foundeligible if self-certification of income were permitted. This would result in anadditional enrollment of 12,640 people in the 1931(b) Only group, at anannual medical cost (state and federal) of $15.5 million.

▪ Administrative effects. Self-certification of income would reduce the collec-tion burden on applicants and, to a lesser extent, eligibility workers. Specifi-cally, applicants would no longer need to provide pay stubs, tax returns, orprofit-and-loss statements to document their recent income. Eligibility work-ers would not need to follow up with applicants to collect income documenta-tion. However, eligibility workers would be required, as they are under thecurrent system, to verify applicants’ income through the Income and Eligibil-ity Verification System (IEVS), a centralized state database of income informa-tion. Workers would also be required to request documentation if the reportedinformation were questionable or insufficient to make an accurate calculationof monthly income.

The time savings per 1931(b) Only case created by self-certification of incomeis estimated to be, on average, 2.5 percent of the eligibility worker’s time toperform the “intake” process. This assumption yields an annual savings of $4.2million (state and federal). As with all administrative dollar impacts, such sav-ings are dependent upon Department of Health Services (DHS) acting toreduce payments to counties by this amount or to apply these savings to addi-tional work requirements imposed on counties. Self-certification of incomewould also create some modest offsetting increases in administrative costs, in-cluding the cost of additional intakes ($420,000/year), increased case mainte-nance efforts resulting from additional months of coverage ($540,000/year),and additional program monitoring activities ($250,000/year). In total, allow-ing self-certification of income would result in an annual estimated adminis-trative savings of $3.0 million (state and federal).

▪ Program integrity implications. Currently, the state relies on applicant-supplied documentation and third-party sources to verify the accuracy of in-


come information. If the state allows applicants to self-certify income data atthe time of application, it may need to develop some additional strategies toidentify errors associated with self-certification, ensure that applicant-reportedinformation is accurate and current, and demonstrate that increased use ofself-certification does not result in an increase in erroneous eligibility determi-nations. Some strategies include increased use of third-party sources at thepoint of application, and retrospective audits. The costs of additional programmonitoring activities are included in the estimates presented above.

2. Self-Certification of Income Deductions

California uses a “net countable income” methodology that allows applicants to deduct certainexpenses from their income, so that the income that counts toward the Medi-Cal income stan-dard (maximum allowable income) is lowered. Examples of Medi-Cal income deductionsinclude: child or dependent care, work expenses, court-ordered child support, alimony, educa-tional expenses, and health insurance premiums for other family members. The kind of docu-mentation required for income deductions varies based on the type of deduction and thesource. For example, for child or dependent care, the applicant must provide a receipt or can-celled check showing the amount of the payments. An analysis of data from 35 Californiacounties showed that fewer than 10 percent of applicants reported information on income de-ductions. California also allows applicants to self-certify income deductions as a last resort.

California could modify this policy to allow applicants to self-certify the value of certainincome deductions at the time of application. This would have many of the same types of im-pacts as allowing self-certification of income, albeit to a lesser extent.

▪ Enrollment impacts. Allowing self-certification of deductions could increaseenrollment by making it easier for eligible people to successfully complete theprocess, and by helping current recipients to successfully complete the redeter-mination process. However, allowing self-certification of deductions is notlikely to be seen by potential applicants as significantly reducing the burden as-sociated with the enrollment process. Thus, the impact on enrollment wouldbe smaller than the impact created by self-certification of income, since only asubset of applicants have deductions.

▪ Administrative effects. Because the rules for determining net countable in-come vary among eligibility groups, applicants are often asked to provideinformation on all potential deductions even if they are ultimately not used inthe net income calculation. Allowing applicants to self-certify the value ofincome deductions up-front would reduce the burden on applicants, while stillproviding eligibility workers with sufficient information to determine theappropriate Medi-Cal eligibility group. In most cases, eligibility workerswould not need to follow up with applicants to collect deductions documenta-tion, although they would need to request documentation if they believed that


the self-certified information could be incorrect. Despite the beneficial timesavings to the applicants, it is important to note that the administrative timesaved for the eligibility worker under self-certification of income deductionswould likely be a very small proportion of the overall time spent on the intakeand redetermination processes.

▪ Program integrity implications. Allowing self-certification of income deduc-tions has many similar implications as allowing self-certification of income.One of the greatest similarities is that the rules regarding allowable deductionsare highly specific and complex, and applicants could misapply these ruleswithout realizing it. Thus, the state must design the application form carefullyso that applicants can self-report information in a manner that enables an eli-gibility worker to make the proper calculations. An important difference isthat, unlike income, there are few third-party sources of information on de-ductions that workers could use to verify self-certified information.

3. Gross Income Methodology

As noted above, California currently uses a net income methodology that allows applicants todeduct certain expenses from their gross income. This net countable income figure is thencompared to the relevant Medi-Cal income standard for the appropriate eligibility categoryand family size.

California could change from the net income methodology to a gross income methodologythat would compare the applicant’s gross income to the income standard for each potentialeligibility group. This would eliminate the need for applicants to provide information on in-come deductions and for eligibility workers to develop complex income budgets to determinenet countable income. However, this change would be a significant departure from currentMedi-Cal eligibility determination processes. Unlike the other two options studied, adoptinga gross income standard could also alter who is eligible for Medi-Cal, depending upon theincome standard used.

▪ Enrollment impacts. A gross income methodology could help ensure that in-dividuals who are eligible for Medi-Cal would be more likely to successfullycomplete the enrollment process. Since applicants would not have to provideinformation on income deductions, the process might be completed morequickly, and it would be easier for applicants to understand the eligibility rules.If the income standard were raised significantly, the state would ensure thatpeople who would have qualified with deductions still qualify, while it wouldmake a large number of additional people newly eligible. If the income stan-dard were maintained or slightly increased while changing to a gross incomemethodology, some families (with gross incomes above the income standard)


that are currently eligible due to their deductions would lose eligibility forMedi-Cal. Some exceptions (given federal welfare reform requirements) aredescribed in more detail in this report.

▪ Administrative effects. Changing to a gross income methodology could helpapplicants more easily understand whether their income qualified them forMedi-Cal, and reduce the need to document income deductions. A gross in-come methodology could also provide some administrative savings, as eligibil-ity workers would not have to collect and verify deduction information andcalculate net countable income. However, workers might still have to conducta separate eligibility screen by using an alternative net income methodology(under a different set of rules if applicants were not found eligible under thegross income test) to ensure compliance with federal welfare reform require-ments. The degree to which this would occur depends upon the income stan-dard itself.

▪ Program integrity implications. Use of a gross income methodology couldimprove the accuracy of eligibility determinations. Many eligibility errors occurduring the calculation of net income. As these calculations would not have to beconducted with a gross income methodology, these errors would be eliminated.

Table ES-1: Best Estimates of Potential Enrollment, Medical Cost, and Administrative

Impacts of Allowing Self-Certification of Income for 1931(b) Only Families*

Annual Costs/(Savings)†

Estimated Additional Enrollment

Currently eligible but not enrolled 12,640

Newly eligible 0

Total Estimated Enrollment Increase 12,640

Annual Medical Costs Associated with New Enrollment

State and federal share $15,516,437

State-only share‡ $7,758,219

Annual Net Administrative Savings

State and federal share ($2,968,202)

State-only share‡ ($1,484,101)

Annual Net Costs/(Savings)



*The estimates reflected in this table are “best estimates.” The table does not include “upper bound” estimates that were developed to reflect the highest number of people who might come forward to obtain Medi-Cal coverage if self-certification of income were implemented, as well as the difficulty in obtaining definitive data on simplification impacts. Please refer to the companion Simplifying Medi-Cal Enrollment: Technical Report on the Assets and Income Tests for further discussion of the best estimate and upper bound projections.

†Numbers may not total due to rounding.‡In Federal Fiscal Year (FFY) 2003, California’s state share of both medical and administrative costs is approximately 50 percent.


Each of the three options discussed will improve the enrollment process for prospective en-rollees and for county eligibility workers. Allowing Medi-Cal applicants to self-certify thevalue of their income could result in increased enrollment (of those currently eligible but notenrolled) and reduce administrative costs. As California struggles with record state-budgetshortfalls, simplification strategies that reduce the costs of program administration whileimproving Medi-Cal enrollment are important to explore. Further, at a time when counties arefacing their own budget shortfalls and eligibility workers are experiencing rising caseloads perworker, the administrative advantages of eligibility simplifications may be particularly impor-tant to consider.

I. Introduction

According to a recent survey of California residents, some 820,000 people may be eligible forMedi-Cal (California’s Medicaid program) but are currently uninsured.3 Two recent surveys ofCalifornia families eligible but not enrolled in public health programs found that the com-plexity of the eligibility determination process remains a primary barrier to enrollment.4 Cali-fornia’s experience is not unique. Many states grapple with the same challenge: designingeligibility processes that facilitate enrollment while maintaining program integrity. Moreapplicants are denied eligibility because they fail to provide documentation or drop out of theenrollment process than are denied because their income or assets are too high. Many eligiblepeople do not apply until they have an immediate health care need (or have already incurredan uncovered health care expense), suggesting that the difficulties associated with the enroll-ment process can deter people from using Medi-Cal as coverage that promotes routine andpreventive care.5

Simplification of the enrollment process has helped those who are eligible to enroll in healthinsurance programs in many states. Simplification has also reduced administrative costs with-out increasing the number of erroneous determinations. Further, the federal government hasbeen supportive of states’ efforts to simplify their Medicaid eligibility processes. The Centersfor Medicare and Medicaid Services (CMS) and Office of the Inspector General (OIG) have


3. Brown et al., “The State of Health Insurance in California,” pages 43-46. The researchers estimated that355,000 uninsured children may be eligible for Medi-Cal, and 413,000 parents and 52,000 other uninsuredadults who are not custodial parents may be eligible for Medi-Cal.

4. “Using Market Research to Improve Enrollment of Families Eligible for Medi-Cal and Healthy Families,” de-veloped by Eric Marder Associates, Inc. for the Medi-Cal Policy Institute, March 2002; Brown et al., “TheState of Health Insurance in California,” pp. 51, 52.

5. An important positive feature of the Medi-Cal eligibility process is that it awards coverage retrospectively forup to 90 days. Thus, people who do apply and succeed in obtaining coverage are able to get their past servicespaid for by Medi-Cal.


noted that it is “just as unacceptable to deny eligibility . . . as a result of complicated andburdensome application and retention procedures as it is to enroll ineligible beneficiaries. Pro-gram integrity and efficient eligibility determinations go hand in hand.”6

California’s Path to Simplification

California has made several changes to the eligibility process to remove barriers to enrollmentamong qualified individuals, including:

▪ Use of mail-in applications for Medi-Cal. In October 1998, California cre-ated a joint four-page mail-in application for children and pregnant womenapplying for the Medi-Cal and Healthy Families programs. In July 2001, Cali-fornia created a similar four-page Medi-Cal mail-in form for families and med-ically needy/medically indigent adults applying for Medicaid coverage.

▪ Elimination of face-to-face interviews. In 1999, California eliminated the re-quirement that Medi-Cal beneficiaries meet face-to-face with eligibility work-ers during the annual redetermination process.

▪ “Ex parte” verification requirements. To comply with CMS’s April 7, 2000,letter to State Medicaid Directors and California Senate Bill 87, California re-duced certain documentation requirements for Medi-Cal applicants to avoid“unnecessary and repetitive requests” for information from families to verifyinformation already on file (e.g., through Food Stamp or TANF records, wageand payment information) or not subject to change (e.g., applicant’s birthdate).

▪ Elimination of assets test for children. In 2000, California eliminated the as-sets test for the Medi-Cal eligibility groups that cover children in the percentof poverty categories. This includes children under 1 year whose family in-come is at or below 185 percent of the federal poverty level (FPL), childrenaged 1 to 6 in families with incomes at or below 133 percent FPL, and chil-dren aged 6 to 19 in families with incomes at or below 100 percent FPL.

▪ Elimination of Quarterly Status Reporting. In 2001, California eliminatedthe requirement for submission of Quarterly Status Reports and instead re-quired beneficiaries to submit redetermination information annually or whenthey experienced changes in income and resources.

▪ Reduction of income documentation requirements to align Medi-Cal withHealthy Families. Through a policy mandate in March 2001, California mod-ified the Medi-Cal income documentation requirements to accept as proof of

6. CMS Letter to State Medicaid Directors, “Medicaid Simplification Strategies—QC,” January 19, 2001.


income one pay stub or the applicant’s most recent income tax return. Thischange aligned Medi-Cal income documentation requirements with HealthyFamilies.

▪ Use of Health-e-App. In February 2001, California began using Health-e-Appto enroll children and pregnant women into the Medi-Cal and Healthy Fami-lies programs through the Internet. Health-e-App includes error-checking andvalidation features that eliminate potential errors in calculating income anddeductions. Health-e-App documentation requirements are similar to thoserequired in the joint Medi-Cal/Healthy Families application, but the applica-tion and documentation can be submitted electronically.

California continues to consider modifications to the Medi-Cal outreach and eligibilityprocess. The Governor’s proposed budget for SFY 2003-2004 supports certain types of simpli-fications, such as continuous eligibility for children, accelerated enrollment for children, and“Express Lane Eligibility.” The Express Lane Eligibility approach allows families to apply forMedi-Cal/Healthy Families at the same time they are applying for Food Stamps or theNational School Lunch program. Express Lane Eligibility not only expedites enrollment intopublic health insurance programs but also reduces the burden on families associated with sep-arate applications for programs that require some of the same information and supportingdocuments. Faced with a multibillion-dollar budget deficit, the Governor’s proposed budgetalso imposes enrollment barriers, including the reinstatement of Quarterly Status Reporting.The Governor’s proposed budget eliminates funding to train certified application assistants(CAAs) to use Health-e-App, and eliminates payments to CAAs for helping eligible applicantscomplete their applications for Medi-Cal or Healthy Families.

Next Steps Toward Simplification

There are additional measures California could adopt to further simplify the eligibility de-termination process and help ensure that all people who are eligible for Medi-Cal and seekcoverage are able to successfully complete the enrollment process. To assist California policy-makers to better understand the options available, the Medi-Cal Policy Institute commis-sioned The Lewin Group to assess the impacts of certain eligibility simplification strategies.

This report discusses strategies for simplifying the income portion of the eligibility determinationprocess, including regulatory requirements, operational considerations, and experiences of otherstates that have implemented various simplification options during the past several years.

The next two chapters of this report provide more details on the income aspects of the Medi-Cal eligibility process, and assess the policy, enrollment, and administrative implications ofthree simplification options:


1. Allowing self-certification of income;

2. Allowing self-certification of income deductions; and

3. Changing the methodology used to count income.

This study also provides cost estimates of the enrollment and administrative impact of self-certification of income, the option expected to provide the greatest potential benefit to appli-cants and eligibility workers. Because the bulk of Medi-Cal applicants and beneficiaries arefamilies and children, this series of reports on simplification is focused on the application andenrollment process for those groups. Therefore, this report outlines the income standards anddocumentation requirements for a “typical” child or family Medi-Cal application (e.g., 1931[b]Only group). It is important to note that there are many other Medi-Cal programs for whichthe income standards and documentation requirements do not conform to those outlined inthese sections.

This report is the companion piece to the Institute’s report on options relating to the elimina-tion and simplification of the assets test, titled Simplifying Medi-Cal Enrollment: Options forthe Assets Test. These analyses were conducted in late 2002 using the program policies in placein California and other states at that time. As Medicaid programs across the country strugglewith the budget implications of record state-revenue shortfalls, simplification strategies thatreduce the costs of program administration while maintaining current eligibility standards arelikely to be the ones of greatest interest. The summary report on simplification in Medi-Cal,Simplifying Medi-Cal Enrollment: Opportunities and Challenges in Tight Fiscal Times, highlightssome of these approaches. A description of the methodology used to estimate the enrollmentand cost impacts of the various modeling options is provided in the companion piece, Simpli-fying Medi-Cal Enrollment: Technical Report on the Assets and Income Tests.

II. Overview of the Income Test

The Medicaid program, known as Medi-Cal in California, is a joint state-federal program.The federal Department of Health and Human Services, through the Centers for Medicareand Medicaid Services (CMS), creates program regulations and policies that generally outlinethe minimum requirements for state participation in Medicaid. These requirements includeeligibility groups, benefits covered, and administrative standards. States have extensive flexibil-ity in going beyond these minimums. The four sections of this chapter present the key aspectsof the income portion of the Medicaid eligibility determination process:

▪ Defining eligibility groups and income standards;

▪ Determining the income methodology;

▪ Verifying income documentation; and

▪ Ensuring program integrity.

Each of these sections describes the federal requirements that apply to all states, and outlinesareas in which the federal government provides states with some flexibility. These sections thendiscuss how California is implementing these rules, particularly in areas where the state hastaken advantage of this federal flexibility.

As noted in the introduction, this report addresses the enrollment process used by most fam-ilies and children. Therefore, the following sections outline the income standards and docu-mentation requirements for a “typical” child or family Medi-Cal application (e.g., 1931[b]Only group, percent programs). It is important to note that there are many other Medi-Cal pro-grams for which the income standards and documentation requirements do not conform to thoseoutlined in these sections.



A. Eligibility Groups and Income Standards

The federal government requires Medicaid to cover certain eligibility groups. The federal gov-ernment also provides states with considerable flexibility in covering optional groups. TheMedi-Cal program has taken advantage of this flexibility and currently has about 165 differenteligibility groups, including groups that are required by the federal government, groups de-fined by the federal government that may be covered at the state’s option, and state-onlygroups with eligibility criteria set by the state. For the latter, the state does not receive federalfunding.

Different Eligibility Groups Often Have Different Income Standards

Medicaid does not cover all low-income people. Eligibility depends on several factors, one ofwhich is income. Non-custodial adults, for example, regardless of income, cannot qualify forMedicaid unless they are aged, disabled, or pregnant. For many families and children, how-ever, low income is the key determinant of eligibility.

People in different Medicaid eligibility groups may have different income standards. Most ofCalifornia’s 165 eligibility categories have different eligibility standards that include differentincome standards and documentation requirements.7 Some key factors that affect eligibilityfor families and children—the main subjects of this analysis—are described in detail below.

Federal Poverty Level Guidelines Are the Basis for Many Income Standards

Many Medicaid income standards are based on the federal poverty level (FPL), which is up-dated annually to account for inflation (see Table 1). For example, federal rules require stateMedicaid “percent programs” to cover children under age 6 and pregnant women whose fam-ily income is at or below 133 percent of the federal poverty level, as well as children betweenages 6 and 19 in families with incomes at or below 100 percent of the federal poverty level.

7. Although the focus of this report is on the income aspects of the Medicaid eligibility determination process, el-igibility depends on many factors. For many people, eligibility for Medicaid depends in part on eligibility forother programs (which may have their own income standards), such as Supplementary Security Income (SSI),Medicare, or foster care. Other factors include age, assets, medical bills, citizenship, and family status.

Table 1. Federal Poverty Levels (FPLs), 2003*

Monthly/Annual Family SizeIncome Limits† 1 2 3 4

100 Percent FPL $748 / 8,980 $1,010 / 12,120 $1,272 / 15,260 $1,533 / 18,400

133 Percent FPL $998 / 11,973 $1,347 / 16,160 $1,696 / 20,346 $2,044 / 24,533

185 Percent FPL $1,384 / 16,613 $1,869 / 22,422 $2,353 / 28,231 $2,837 / 34,040

*Federal Register, Vol. 68, No. 26, February 7, 2003, pp. 6456-6458.†Monthly/annual income levels are on a pre-tax basis.


States can choose to cover infants up to 1 year and pregnant women whose family income isup to 185 percent of the federal poverty level; states can also effectively raise the income stan-dard to 200 percent for this group through the use of income disregards, as discussed below.

Federal Rules Allow Flexibility Through the Use of Income Disregards

The federal government specifies minimum federal poverty level income standards for manygroups, but allows states to cover people with higher incomes up to certain limits. States definethese limits by using income “disregards” for the entire eligibility group. Disregards are specialrules that ignore certain amounts, proportions, or types of income in order to effectively in-crease the income standard (or FPL limit) for the group. For example, although the federalgovernment allows states to cover infants up to 1 year and pregnant women whose familyincome is up to 185 percent of the federal poverty level, states can employ income “disregards”for all individuals in that eligibility group, effectively raising the income standard to 200 per-cent of the FPL. Other types of disregards are used that apply only to individuals in certaincircumstances, rather than across the entire eligibility group. These disregards are discussed inmore detail in the section on income methodology.

California’s Income Standards

California takes advantage of federal flexibility in designing its income standards. Table 2 out-lines the annual income limits for several family-related Medi-Cal eligibility groups as of early2003. For some eligibility categories, California’s income limits are higher than the federallymandated minimum requirements:

▪ Percent Programs. For children between the ages of 1 and 19, California usesthe federal minimum income standard as the Medi-Cal standard. For pregnantwomen and children under 1 year, California disregards income between 185and 200 percent of FPL to make the effective income limit 200 percent of FPL.

Table 2. Annual Income Limits for Selected Medi-Cal Eligibility Groups

California Standard Federal Minimum RequirementPopulation (as a percentage of FPL)* (as a percentage of FPL)

1931(b) Only 100% 61%†

Pregnant Women and/or Children Under 1 Year 200% 133%

Children Aged 1 to 6‡ 133% 133%

Children Aged 6 to 19‡ 100% 100%

*California’s standards are shown as the “effective income limit,” taking into account uniform disregards applied to the entire eligibility group.†The federal minimum requirement is related to California’s 1996 AFDC need standard, expressed here as a percentage of the 2002 federal poverty level.

‡The effective income limit for Healthy Families is 250% FPL, taking into account the uniform disregard of income between 200% and 250% FPL.


▪ 1931(b) Program. Similarly, to determine eligibility for 1931(b), Californiadisregards income between the 1996 AFDC standard and 100 percent ofFPL.8 This income disregard effectively makes the 1931(b) income limit 100percent of FPL.9

B. Income Methodology: Counting Income

The federal government also gives states flexibility in determining their income method-ology—or the way that states count income—for many eligibility groups. Because states mayuse different disregards, it can be misleading to compare income standards without also com-paring different income methodologies. There are two methodologies that states can use: netcountable income or gross income. California, along with all but three state Medicaid pro-grams, uses the net income methodology. Only Massachusetts, South Dakota, and the Districtof Columbia use the gross income approach.

Net Countable Income Methodology

Under the net countable income approach, states determine the kinds and amounts of incomethat count toward the income limit for the 1931(b) group; poverty-level pregnant women andchildren; the aged, blind, and disabled; and the medically needy. States can also decide how tofactor expense information, such as child care costs, into the determination of a family’s needso that low-income families can maintain their health coverage while working. The only limitplaced on states by the federal government comes from welfare reform legislation that requiresstates to use either the same or “less restrictive” methods than those in place in 1996. A higherincome standard is considered less restrictive, as is eliminating a rule that previously excludedcertain applicants (e.g., eliminating the assets test) or changing a rule to allow more people toqualify (e.g., increasing the assets test from $3,000 to $5,000).

8. Federal “maintenance of effort” rules require states to use Medicaid eligibility standards at least as generous asthe AFDC eligibility standards in effect in 1996. This is because, prior to welfare reform, Medicaid eligibilityfor some low-income families was linked to eligibility for the federal AFDC program. The AFDC program had“need standards” (income standards) that were different from the federal poverty level. The 1996 AFDC needstandard for a family of three in California was $734, which is below the current FPL of $1,272 for a family ofthree.

9. This approach has been adopted by many states. In essence, states disregard the difference between the AFDCneed standard in place in 1996 and a less restrictive income standard chosen by the state (e.g., 100 percent ofthe current federal poverty level). States have chosen this option so that the income standard for the 1931(b)group is based on the federal poverty level, which is updated every year to account for inflation, instead of theAFDC need standard, which is frozen at the 1996 levels. Using the federal poverty level standards as the basisfor the 1931(b) income standards has the added effect of aligning 1931(b) income standards closer to those ofother Medicaid eligibility groups, such as the percent programs for children, and other programs such asSCHIP (Healthy Families), which all use the federal poverty level income standards. Arizona, California, Con-necticut, Delaware, the District of Columbia, Hawaii, Maine, Massachusetts, Minnesota, Missouri, New Jer-sey, New York, Ohio, Oregon, Rhode Island, Vermont, Washington, and Wisconsin all use a 1931(b) incomestandard that is higher than the AFDC need standard.


The methodology for calculating net countable income involves the process of combiningearned income, unearned income, exemptions, and deductions. As noted above, states canapply income “disregards” (deductions and exemptions) to reduce gross income before it iscompared to the income standard of the appropriate Medicaid eligibility category.

County eligibility workers face a daunting level of complexity in sorting through which appli-cants qualify for which of California’s 165 eligibility groups. Different eligibility groups often haveunique rules for calculating net countable income. As noted above, in California, income between185 and 200 percent of the federal poverty level is disregarded for children under 1 year andpregnant women; and income between the 1996 AFDC level and 100 percent of the federalpoverty level is disregarded for the 1931(b) group. Eligibility workers may need to conductseparate calculations for individual members of a family, or apply the rules for multiple eli-gibility categories to a single application, to find a group for which each member in the familyis eligible.

Adding to the complexity under the net countable income methodology, the amount of grossincome a person may have and still qualify for Medi-Cal may vary depending on the group forwhich the person is ultimately found eligible. In fact, a person may still be eligible for Medi-Cal even if his/her gross income is above the income standard for all Medi-Cal eligibilitygroups, once income exemptions and deductions are applied. The process of applying theseincome methodologies—in general and specifically in the Medi-Cal program—is described ingreater detail below.

Gross Income Methodology

As an alternative to the net countable income methodology, states can use a gross incomemethodology to determine eligibility. Under this methodology, an applicant’s gross income(other than a few federally required exemptions, such as assistance payments) is compared tothe income standard. This approach is much simpler than the net countable income method-ology in that applicants and eligibility workers do not need to consider various expenses, suchas child care, in the eligibility determination process. It is important to note that for a givenincome standard (e.g., 185 percent of FPL), applying a gross income methodology rather thana net income methodology would result in fewer people eligible for Medicaid. Conversely, if astate maintained its income standard (e.g., 185 percent of FPL) but changed from a gross to anet income methodology, it would in effect expand eligibility because deductions help peoplewith higher gross incomes (e.g., 200 percent of FPL) to qualify for coverage.

Determining Net Countable Income

To determine an applicant’s total income, eligibility workers must consider an applicant’searned and unearned income. To calculate net countable income, eligibility workers mustidentify information on exemptions and deductions and subtract these from gross income.Below are more details on the components of earned income, unearned income, exemptions,


and deductions. The next section provides more information on the documentation applicantsmust generally provide to show their income, deductions, and exemptions.

Earned and Unearned Income

▪ Earned income. Earned income generally includes income generated throughwork. Common examples of earned income include: wages, commissions, tips,and profit from self-employment. Self-employed applicants can provide taxreturns or recent profit-and-loss statements, or they can document business re-ceipts and expenses.

▪ Unearned income. Unearned income generally includes income that was notgenerated through employment directly, such as annuities, child support,Social Security, pensions, gifts, Veterans Administration payments, private dis-ability payments, unemployment compensation, interest, royalties, and prizes.

Income Disregards

Under the net countable income methodology, not all income is counted for purposes of de-termining eligibility. In determining countable income, the Medi-Cal program does not countcertain kinds of income and expenses (exemptions and deductions), which are collectivelyknown as disregards.

▪ Exemptions. Income that is excluded from the countable income calculation iscalled an exemption. States are required to completely exempt certain types ofincome, such as assistance payments (e.g., TANF/SSI).10 Eligibility staff reportthat commonly taken Medi-Cal exemptions include: social services, assistancebased on need, foster care payments, exempt loans/grants/scholarships/fellow-ships, federal payments to Native Americans, and earnings of children underage 14.

▪ Deductions. To account for incurred expenses that support a family member’sor individual’s ability to work, income deductions are allowed in determiningnet countable income. These deductions are subtracted from an applicant’sgross income (earned plus unearned income) to reach the net or countableincome.

Federal Medicaid rules allow states to deduct certain types of expenses fromtotal income. States may deduct a portion of earned income to account for thefact that working people incur some costs to work, such as Social Security taxes

10. SSI (Supplemental Security Income) is a federal program that provides cash benefits for certain aged, blind,and disabled people.


and transportation expenses. Working parents can deduct some or all (depend-ing on the state) of their child care costs. Families in which a parent pays childsupport or alimony to children or a former spouse living in a different house-hold can have these amounts deducted from their income. Self-employedpeople can deduct business expenses. States may allow many other deductions,such as the cost of health care premiums if the family is able to pay for somemembers to be covered by private insurance.

Examples of income deductions in Medi-Cal include: child or dependent care,work expenses, court ordered child support, alimony, educational expenses,and health insurance premiums for other family members. Deductions varysignificantly based on whether a person is applying for Medi-Cal for the firsttime or whether a person already enrolled in Medi-Cal is reporting a change inincome between renewals or applying for redetermination. For example, Cali-fornia, like most states, allows applicants applying for Medi-Cal for the firsttime to deduct $90 for each working person to account for work-related ex-penses. (The $90 figure is based on the AFDC earned income disregard anddoes not vary with the amount of the applicant’s gross income.) However, if aMedi-Cal beneficiary reports a change or applies for renewed coverage, $240plus 50 percent of the remaining earnings can be deducted.

Income Deductions for the Healthy Families Program Align with Medi-Cal

California’s separate child health insurance program, Healthy Families, covers children infamilies with higher incomes than those who qualify for Medicaid coverage. Healthy Familiescurrently disregards income between 200 and 250 percent of FPL (as indicated in Table 2) andallows applicants to apply any Medi-Cal income deductions to this threshold. While HealthyFamilies has different income standards than the Medi-Cal 1931(b) and the children’s per-centage programs, applicants can fill out a single application that allows the eligibility workerto determine the appropriate program for the child.

C. Income Documentation and Verification

The federal “delinking” of cash benefits and other public programs allowed states to modifythe process by which applicants document and eligibility workers verify application data forMedicaid.11 Current federal law requires states to:

▪ Obtain documentation of a qualified alien’s immigration status (only appliesto non-citizens);

11. CMS Letter to State Medicaid Directors, “Outreach and Enrollment,” January 23, 1998; CMS Letter toState Medicaid Directors, “Application and Enrollment Simplification and Clarification of Eligibility Re-quirements,” September 10, 1998.


▪ Obtain each applicant’s signature, under penalty of perjury, that the informa-tion reported on the application is correct; and

▪ Verify applicant income through an automated income and eligibility verifica-tion system (IEVS).12

Beyond that, states can determine how to verify an applicant’s income, resources, and other in-formation in any manner that adequately promotes the objective of ensuring that only thosewho meet the state’s specified Medicaid eligibility criteria are determined to be eligible. For ex-ample, a state can:

▪ Accept a statement by the applicant or recipient, signed under penalty of per-jury, that any or all of the following data self-reported by the applicant are cor-rect: income, citizenship status, assets/resources, date of birth, residency, socialsecurity number, and child care expenses (self-certification);

▪ Check third-party sources of information, such as Food Stamp and TANFrecords, wage and payment information, information from SSA through theSDX or BENDEX systems, or state child care or child support files; and/or

▪ Require applicants to provide documentation of any or all Medicaid eligibilityinformation (e.g., pay stub, state or federal tax return).

California Requirements

California requires applicants to provide documentation of earned income (e.g., pay stub, stateor federal tax return), checks third-party sources of information, and allows applicants to self-certify this income information as a last resort. The Medi-Cal program’s documentationrequirements vary both by type of income or disregard, as well as by the type of program for which the applicant is being evaluated (e.g., Medically Needy, 1931[b] Only). In somecases, applicants may not have the documentation required by the state. In those cases, appli-cants may self-certify the value of their income or disregards as a last resort. California Medi-Cal regulations require counties to make an attempt to verify information before allowingself-certification.13

12. At the time of application, states check income and eligibility data through IEVS for every applicant. IEVSincludes wage information contained in the state’s data files (e.g., state income tax records), informationabout net earnings and retirement income from the Social Security Administration, information about en-rollment in SSI and other programs, unearned income information from the IRS, unemployment compensa-tion from the state unemployment agency, and other reported income information from other publicprograms such as TANF and Food Stamps.

13. California Code of Regulations, Title 22, Section 50172.


Earned and Unearned Income Documentation

California, like most states, requires applicants to report all sources of income. This informa-tion is then used by eligibility workers when going through the complex process of determin-ing eligibility under any one of California’s 165 eligibility groups. To allow the eligibilityworker to determine countable income, the Medi-Cal application asks for a description ofearned and unearned income. Specifically, the application requests the name of the individualwho receives income, the source of income, amount of income, and frequency of income.

Applicants are required to provide documentation of earned and unearned income when ap-plying for Medi-Cal coverage under both 1931(b) and the percentage programs.14 Table 3 de-scribes some of the acceptable forms of documentation for several types of earned andunearned income.

Earned and Unearned Income Verification

In addition to receiving supporting documentation from applicants, eligibility workers mustverify income.15 In most cases, eligibility workers use third-party resources, such as IEVS, toverify reported income information. Some examples of the data housed in California IEVSinclude:

▪ Social security benefits from the Social Security Administration;

▪ Quarterly wage data from the California Employment and DevelopmentDepartment;

▪ Income and property from the Internal Revenue Services (IRS) and the Cali-fornia Franchise Tax Board; and

▪ Wages, TANF, Food Stamps, and Medicaid eligibility from California, Ari-zona, Nevada, and Oregon.

The data contained in IEVS vary in age from one month to more than a year old. In somecases, these data may be out of date with an applicant’s current financial situation. For ex-ample, income data provided by the IRS can be up to a year old, as they are based on the prioryear’s filings. A recent loss in employment, for example, may not be reflected in the prior year’s

14. The Medi-Cal and joint Medi-Cal/Healthy Families applications have different instructions regarding certaintypes of income information. In the Medi-Cal application, applicants are asked to provide all income infor-mation. The joint application advises the applicant not to list income from SSI/SSP payments, foster carepayments, college work study, CalWORKs payments, loans, and wages for a child under the age of 14. How-ever, for some categories of income, such as in-kind income, neither application provides specific instructionson the required documentation.

15. The federal government requires states to verify all sources of income using documentation or third-partysources that are included in their federally approved income standards and methodologies for counting in-come. States must request approval to use alternate sources of income information.


wages. While the counties are not required to check third-party sources to verify all types of in-come, CMS encourages random post-eligibility verifications to ensure program integrity.16

Income Exemptions and Deductions Documentation

The kind of documentation required for income exemptions and deductions varies based onthe type of disregard and, often, the source of the income or expense. Income exemptions tendto require less documentation on the part of applicants. Deductions tend to have more strin-gent documentation requirements. As noted earlier, county workers may allow self-certificationas a last resort if the case file documents the eligibility worker’s unsuccessful attempts to verifythe information.

Even though exempt income is excluded from the net income calculation, applicants are askedto provide all income information to ensure that they do not leave out any countable incomesource. Because the rules for determining countable income are complex, the eligibility workermakes the final determination of countable versus exempt income.

Medi-Cal applicants are specifically asked to provide the name of the person who pays and theamount paid for each of the following expenses:

▪ Court-ordered child support;

▪ Court-ordered alimony;

▪ Other health insurance premiums; and

▪ Medicare premiums.

For child or dependent care, the applicant must provide the name and age of the child or de-pendent, along with the name of the person who makes the payments and the amount of thepayments. Table 3 provides examples of various exemptions and deductions and the kind ofdocumentation that is acceptable for each.

16. The Centers for Medicare and Medicaid Services. 2001. Continuing the Progress: Enrolling and Retaining Low-Income Families and Children in Health Care Coverage.


Table 3. Documentation of Income and Disregards

Earned and Unearned Income

Item Type Acceptable Documentation

Income, non-self-employed Earned • Most recent pay stub

OR• Signed statement from employer indicating the gross

monthly income and the dates received

OR

• Copy of prior year’s federal income tax return

Income, self-employed* Earned • Prior year’s federal income tax return and Schedule C/F

OR

• Profit and loss statements for prior 3 months

Disability or retirement Unearned • Copy of an award letter

OR

• Bank statement showing direct deposit of income

Child support Unearned • Copies of checks received

OR

• Statement from the Family Support Division

In-kind income Unearned • Signed statement from provider of services or housing

Income Exemptions and Deductions

Item Type Acceptable Documentation

Exempt loans, grants, Exemption • Copies of award letters/loan papersscholarships and fellowships

Child care or dependent care Deduction • Receipts for services rendered(up to $175 per month per child, OR$200 for children under age 2) • Cancelled checks

Court-ordered child or spousal Deduction • Statement from the Family Support Divisionsupport

Educational expenses Deduction • Receipts or payment statements

OR

• Cancelled checks

Other health insurance Deduction • Receipts or payment statementspremiums OR


Medicare premiums Deduction • Payment statements

OR


Self-employment expenses Deduction • Records/receipts kept for tax purposes

*Applicants for the 1931(b) Only eligibility group have the option of documenting receipts or taking a 40 percent deduction from the gross amount as a proxy for expenses. In either case, the net income (profit) from self-employment is reported as the applicant’s gross income for purposes of Medi-Cal eligibility determinations.


Deductions Reported by Families Applying for Medi-Cal

Data on one full month of Medi-Cal cases active in 35 California counties were reviewed todetermine the degree to which deductions data are reported by applicants and captured by el-igibility workers.17 The data show that modest proportions of Medi-Cal applicants are provid-ing deduction information in these counties, as shown in Table 4. Among the 1931(b) Onlypopulation, income deductions are occurring in only about 6 percent of the cases examined.Medical expense deductions were the most frequently occurring deduction, being included onapproximately 3 percent of cases.18 Child care and self-employment expenses were each in-cluded on about 1.5 percent of the applications. All other types of income deductions oc-curred very rarely.

Table 4 also indicates the average expense applicants reported in each deduction area, when agiven type of deduction was claimed. Most kinds of deductible expenses tended to average$200 to $400 per month, although self-employment expenses averaged nearly $1,000 permonth.

17. The Lewin Group staff met with staff of the Interim Statewide Automated Welfare System (ISAWS), con-ducted a series of phone calls, and obtained a data file containing Medi-Cal caseload information, includingincome deductions, on all current cases in ISAWS (active, pended, or denied) during July 2002. Similar datawere not available from the Los Angeles LEADER system. The ISAWS data were reviewed to ensure theytracked well with data available from other sources. While not specific to deductions, the ISAWS data werecross-checked with other counties on key indicators. For example, reason codes for applications denied weresimilar in their distribution to those of San Diego County.

18. Medical expenses cannot be deducted from gross income for purposes of determining net countable incomefor the 1931(b) group, but are used to determine eligibility for Medically Needy and Medically Indigentgroups. Since applicants may not know which group they are potentially eligible for when they submit theirapplications, they may provide documentation that could help workers determine eligibility for all possiblegroups.

Table 4. Medi-Cal Application Deductions, Selected Counties, July 2002*

Number of 1931(b) Only Percent of 1931(b) OnlyCases Reporting Cases Reporting Average Reported

Deduction Type Deduction Deduction (n=57,446) Monthly Expense†

Child Care Expense 840 1.46% $239

Self-Employment Expense 858 1.49% $970

Medical Expense 1,650 2.87% $370

Rental Expense 72 0.13% $318

Room and Board Expense 5 0.01% $250

Other Expense 11 0.02% $571

*Data were provided by the Interim Statewide Automated Welfare System (ISAWS). ISAWS is an automated Medi-Cal eligibility system used to process Medi-Cal eligibility applications in 35 of California’s most rural counties.

†According to the data, these amounts represent the expense amount claimed by the applicant, and do not necessarily represent the amounts approved or documented by the eligibility worker or the amounts allowed for deduction from countable income.


Streamlining Verification Rules when Renewing Eligibility

For purposes of redetermining eligibility after initial eligibility has been established, states mustconduct an “ex parte” review under federal requirements. An ex parte review requires states tomake all reasonable efforts to obtain relevant information from Medicaid files and othersources (e.g., Food Stamp and TANF records).19 Thus, states must rely on information that isavailable and considered to be accurate. For instance, information that the state or federal gov-ernment currently relies on to provide benefits under other programs, such as TANF, FoodStamps, or SSI, must be considered accurate. Another ex parte requirement is that states cannot require individuals to provide information that is not relevant to their ongoing eligibilityor that has already been provided with respect to an eligibility factor that is not subject tochange, such as date of birth or United States citizenship.

Many states have taken steps to ease the renewal process for those already receiving Medicaidand SCHIP coverage, thereby allowing more eligible parents and children to retain their cov-erage. California is among the 48 Medicaid and 34 SCHIP programs that do not require face-to-face interviews at the time of renewal. Other states have also simplified their renewal formsby requesting only information that may change and affect eligibility. The Florida, Georgia,and Utah SCHIP programs and the South Carolina Medicaid program have adopted “passiverenewal” procedures, which require the family to return the renewal form only if circumstanceshave changed. If the family does not return the form, the state assumes that the informationreported at the time of application is still correct and uses this information to determine eligi-bility for the next period.

D. Program Integrity

A common question among policymakers is whether simplifying the eligibility process wouldmake it easier for applicants to unintentionally or intentionally misrepresent the value of theirincome and assets and obtain Medicaid coverage in error. While Medicaid beneficiary fraud isvery minor20 compared to provider fraud, federal rules require states to monitor program in-tegrity at the time of application and on an ongoing, retrospective basis (e.g., through IEVS).

The eligibility determination process has multiple safeguards designed to identify and mitigatethe potential for errors and fraud. These components occur at several places along the way,from the point of application through to retrospective audits, to provide a range of activitiesthat together compose a system for ensuring program integrity.

▪ Data verification at application. To the extent possible, states check applicant-

19. CMS Letter to State Medicaid Directors, “Efforts to Improve Eligible Families’ Ability to Enroll in Medic-aid,” April 7, 2000.

20. Interviews with Medi-Cal program integrity staff indicated that in California 2.5 percent of audited caseshave beneficiary errors, with one-fifth of these cases (0.5 percent of the total) seeming to represent fraudulentinformation.


reported information against other third-party sources of data, such as stateemployment and income tax databases.

▪ “Prudent person” standard. All states—even those that allow applicants toself-certify the accuracy of the information they report—require eligibilityworkers to request documentation of certain information if a “prudent person”would find the application information suspicious.

▪ Medicaid Eligibility Quality Control systems. The federal government requiresall states to have Medicaid Eligibility Quality Control (MEQC) systems tomonitor the accuracy of Medicaid eligibility determinations and redetermina-tions on a retrospective basis, and to maintain error rates below the 3 percenttolerance level allowed by federal law.21 CMS regulations specify mechanismsthrough which states must monitor the accuracy of eligibility determinations,but states can (and many do) apply for waivers to conduct MEQC pilots totest alternative mechanisms for monitoring accuracy.22

In a September 12, 2000, letter to state quality control directors, CMS provided guidelines forstates to conduct MEQC pilots specifically focused on measuring the impact of eligibilitysimplification decisions on fraud and error rates. Kentucky undertook an MEQC pilot projectto determine the validity of self-certification of income in its Medicaid expansion program,Kentucky Children’s Health Insurance Program (KCHIP). Investigators conducted 1,082 re-views, which included interviews with Medicaid recipients and their employers, as well as in-dependent eligibility verification. Of the 1,082 cases reviewed, 56 were found to have incomeabove the income limits. The degree to which these errors were attributed to the use of self-certification by applicants was not reported.

In the past few years, there has been renewed focus on eligibility errors from both CMS andthe federal Office of Management and Budget (OMB), which has instructed states to measurethe accuracy of eligibility determinations in all programs that receive federal funding, includ-ing Medicaid. In the future, states may be required to demonstrate more explicitly that eligi-bility simplification efforts have not increased the number of determination errors.23

21. Federal Code of Regulations, Title 42, Section 431.800 ff.22. California’s MEQC pilot program focuses on alternative methods for sampling. It is an extension of a pilot

project known as the Geographic Sampling Plan (GSP), which selected a geographically representative sam-ple of eligibility determination cases to be reviewed for accuracy. For large counties, the MEQC measures thecounty’s performance in correctly determining eligibility and also provides areas for “focused review.” Insmaller counties, focused case reviews are performed on a smaller sample of cases by using the data in IEVSand the Medi-Cal Eligibility Data System (MEDS).

23. The Improper Payments Information Act of 2002, signed by President Bush on November 26, 2002, requireseach federal agency to estimate the annual amount of improper payments and include that estimate in its annualbudget submission. Payments include those made on behalf of “ineligible recipients.” In addition, Office ofManagement and Budget Circular A-11, Exhibit 57B, requires the Department of Health and Human Servicesto measure and report on the accuracy of state agency eligibility determinations and claims payments for HeadStart, Medicare, Medicaid, TANF, Foster Care-Title IV-E, SCHIP, and the Child Care and Development Fund.

III. Income Test Simplification Options

California has several options for simplifying the income requirements and procedures associ-ated with the eligibility determination process. Three of these options are presented below,along with a discussion of the key considerations policymakers must take into account, such asthe effects of these options on enrollment, administration, and program integrity. After theoptions are set forth, the last section provides cost estimates of the enrollment and administra-tive impact of self-certification of income, the option expected to provide the greatest poten-tial benefit to applicants and eligibility workers.

A. Self-Certification of Income

The Medi-Cal program has started to simplify the income reporting process by requiring ap-plicants to provide one pay stub to document income from employment. (Previously, Medi-Cal applicants had to provide pay stubs for two months’ worth of income.) Self-employedapplicants can provide a copy of the previous year’s tax return or profit-and-loss statements forthe previous three months. Self-certification of these income documentation requirements iscurrently allowed as a last resort.

The state could further simplify this process by allowing applicants to self-certify their incomeat the time of application. Under this option, applicants would not need to provide any docu-mentation of their income (or, in the case of self-employed individuals, their business incomeand expenses) and would instead certify, under penalty of perjury, that the reported incomeinformation is correct. This approach would maintain the current income limits but reducethe collection burden on applicants and, to a lesser extent, eligibility workers. Specific impactson enrollment, administration, and program integrity are discussed below.



Enrollment Impacts

Self-certification of income would increase the number of applicants who successfully com-plete the eligibility determination process and improve retention.

▪ Reduce “failure to provide” denials. There is a concern that many people whomay meet the income and asset limit requirements for Medi-Cal eligibility donot complete the enrollment process because of the burden and complexity ofthe documentation required; in fact, “failure to provide information” is one ofthe most frequently cited reasons for denial of Medi-Cal applications in somecounties. Allowing self-certification of income would reduce the amount of in-formation that many beneficiaries would have to locate and provide, helpingto ensure that individuals who are eligible and begin the enrollment processwould be more likely to successfully complete the process.24

▪ Improve retention. Reducing the documentation requirements by encourag-ing beneficiaries to self-certify their income would also help people and fami-lies who are currently eligible for Medi-Cal to retain their eligibility. Currently,Medi-Cal beneficiaries must recertify their eligibility on an annual basis andprovide up-to-date information on family income and resources if there havebeen changes. A certain number of people lose eligibility each year for failureto provide this documentation. Modifying the documentation requirementsfor Medi-Cal redetermination could help more people stay on Medi-Cal,which would reduce administrative costs associated with people repeatedlygaining and losing eligibility.

Administrative Effects

For applicants, allowing self-certification of income would relieve them of the burden associ-ated with gathering up income documentation. For applicants who are employed, they wouldno longer need to provide one pay stub. For applicants who do not receive pay stubs from theiremployers, applicants would not have to obtain letters from employers stating their currentincome. For applicants who are self-employed, they would either need to attest to their prioryear’s federal tax filing for business income or report their business profit for the previous threemonths of business activity. However, for applicants who do not have this information readilyavailable, they would still need to provide the eligibility worker with the necessary informationon business revenues and expenses so that the worker can develop the profit and lossstatement.

24. Self-employed individuals would still have to go through the process of calculating net business income,which could be time-consuming if not done regularly for other reporting purposes. In addition, some appli-cants might choose to provide documentation of income even if it were not required, for fear of inaccuratelyreporting information under penalty of perjury.


For eligibility workers, allowing self-certification of income would ease but not remove theburden associated with the income test. The major administrative impact is that eligibilityworkers would not need to follow up with applicants to collect income documentation inmost cases. In addition, self-certification of income would improve retention (as discussedabove), which would reduce administrative costs associated with people repeatedly gaining andlosing eligibility.

Allowing self-certification would not completely eliminate the need for workers to obtain in-come documentation from applicants. If self-certification is allowed, eligibility workers wouldstill be required to request documentation if they believe that the self-certified informationcould be incorrect or fraudulent. According to California DHS, beneficiary fraud is not seenas a meaningful problem in the Medi-Cal program, and there are many third-party sources ofdata available through IEVS and other systems to verify applicants’ self-reported income.25

However, these third-party sources are limited by lags in reporting, so recent changes in in-come (e.g., loss of job) are often not validated by the external source. In cases like this, work-ers would be required to go back to the applicant for documentation to support theself-certified income if it were questionable.

It is important to note that the administrative time saved for the eligibility worker under self-certification of income will likely be a very small proportion of the overall time spent on theintake and redetermination processes. Much of the eligibility worker’s time is devoted to veri-fying income information using third-party sources and performing income calculations—activities that would not be affected by allowing applicants to self-certify their income. Themeans by which applicants document or certify their income makes little difference to theeligibility worker for the purposes of determining countable income and identifying the mostadvantageous aid category for each family member.

Program Integrity Implications

Self-certification should not significantly impact overall program integrity because eligibilityworkers would still be required to verify self-reported income through IEVS and other third-party databases, and would be required to request documentation if the reported income wasquestionable. The state can also increase some monitoring activities to ensure that self-reportedinformation is accurate and complete. For example, some states that allow self-certificationhave increased the frequency of data matching with state income records, while others audit agreater number of applications and monitor redetermination applications more closely forchanges in reported income.

The complexity of Medi-Cal eligibility rules may make it difficult for applicants to understandand comply with the rules when self-certifying the value of their income. Therefore, the



self-certification approach might require greater attention on the part of the state to ensure theapplicants are not erroneously reporting income information. For example, an applicant mayreport that he/she is paid every other Friday, and self-certify his/her monthly income to betwice his/her biweekly pay. In fact, there is a formula specified in Medi-Cal regulations thateligibility workers must use to calculate monthly income (based on a 30-day month) using biweekly (14 days) pay. It is possible that someone could have income below the income stan-dard if 28 days of pay are counted, and be above the income standard (and therefore ineligible)if 30 days are counted. Thus, the state must design the application form carefully so that ap-plicants can self-report information in a manner that enables the worker to make the propercalculations even if the applicant misunderstands the rules.

Other States’ Experiences with Self-Certification of Income Are Encouraging

Self-certification of income is currently allowed in 13 states when applying for children’s Med-icaid or SCHIP.26 In 7 of these 13 states, parents can self-certify income when applying forcoverage for themselves.

▪ Ohio is pilot-testing income self-certification in the Cleveland area. Familiesand children applying for Medicaid and SCHIP are allowed to self-certify theirincome for a 12-month continuous eligibility period. The self-certification isallowable for both initial applications and renewals during the pilot phase. Theevaluation plans to measure the accuracy of self-reported income with third-party sources, in addition to other performance measures. The pilot project isdesigned to demonstrate the use of self-certification as a means of expandingenrollment without compromising program integrity.27

▪ Wyoming Medicaid eliminated two aspects of the documentation process—the face-to-face interview (which California eliminated as well) and the re-quirement to document income—to better align its Medicaid and SCHIPprograms to increase enrollment. As in California, Wyoming established itsSCHIP program, KidCare, separately from its Medicaid program and useddifferent eligibility procedures for each program. KidCare contains several de-sign features that eased the enrollment process, including the elimination ofthe face-to-face interview and allowing the self-certification of income. Thestate’s March 2001 enrollment data showed that take-up rates in its Medicaidprogram were significantly less than in their KidCare program. In fact, 86 per-cent of children eligible for KidCare were enrolled versus 44 percent of chil-

26. Ross, D. C., and L. Cox. June 2002. Enrolling Children and Families in Health Coverage: The Promise of DoingMore. Kaiser Commission on Medicaid and the Uninsured. Arkansas, Connecticut, Florida, Georgia, Idaho,Maryland, Michigan, Mississippi, Oklahoma, Vermont, Washington, Wisconsin, and Wyoming allow self-certification of income when applying for children’s coverage in Medicaid.

27. Visit http://www.coveringkids.com/news/Section_67.asp.


dren eligible for Medicaid. Officials ascribed the difference to the moreburdensome enrollment procedures in the Medicaid program. As a result,Wyoming instituted its simplified KidCare application procedures in its Med-icaid program, streamlining the procedures for both programs. Through elimi-nation of the face-to-face interview and documentation requirements, andthrough implementation of outreach activities, the KidCare take-up rate movedfrom 86 percent to 97 percent, while the Medicaid take-up rate moved from44 percent to 84 percent.28 Because Wyoming has such a small population,these large percentage increases in take-up rates translated to 315 more chil-dren in KidCare and 2,814 more children in Medicaid.29

States Are Testing New Approaches to Verify Income at Redetermination

In Louisiana, for children whose Medicaid coverage must be redetermined, caseworkers per-form a search of other state databases to see if the child is receiving other state-administeredbenefits. If so, the application information from these other programs is used to determinewhether Medicaid eligibility should be renewed. Families not qualifying for an automatic re-newal are sent a Medicaid renewal form, which Louisiana recently revised to be simpler andmore user-friendly. If parents do not submit income verification documents with their renewalform, the state also tries to verify their income through the Department of Labor before ter-minating coverage.

Maryland has coordinated its Medicaid, TANF, and Food Stamp databases. Medicaid redeter-mination is mandatory every six months in Maryland. However, for families that submit achange in circumstances to the TANF or Food Stamp programs, an automatic Medicaid rede-termination is performed by an electronic system that coordinates the data among the threeprograms. If data from the TANF or Food Stamp program confirm continued eligibility, par-ticipants receive an automatic renewal of Medicaid benefits for an additional six months. Thiscoordinated approach eliminates the process of updating income information in several pro-grams at different times.

B. Self-Certification of Income Deductions

California could allow Medi-Cal applicants to self-certify the value of certain income deduc-tions at the time of application. Currently, applicants are allowed to self-certify certain incomedeductions as a last resort. Although many income disregards do not require documentation(e.g., the $90 deduction from earned income), some do (e.g., the child care deduction). SeeTable 3.

28. Ross et al., Enrolling Children and Families in Health Coverage: The Promise of Doing More, p. 28.29. Visit http://coveringkids.state.wy.us/enrollment.htm.


The eligibility worker would use the self-certified deduction information to determinewhether the applicant’s net countable income is above or below the income limit for the rele-vant eligibility group and family size. As with self-certification of income, this approach wouldmaintain the current income limits but reduce the collection burden on applicants and, to alesser extent, eligibility workers. An important difference between self-certification of incomeand self-certification of income deductions is that only a subset of applicants has deductions,although all applicants must demonstrate their income. Specific impacts on enrollment, ad-ministration, and program integrity are discussed below.

Enrollment Impacts

As described in the section on determining net countable income, deductions are used to helplower a family’s gross income to a level below the income standard for the eligibility group forthe family to qualify for Medicaid.30 Allowing self-certification of income deductions wouldmake it easier for applicants to report deductions and help those who may qualify for no-costMedi-Cal to be found eligible. Self-certification of deductions would increase enrollment andimprove retention for the same reasons discussed above regarding self-certification of income.However, this increase in enrollment would be smaller since it would only affect a sub-population of applicants.


For applicants, the benefits of self-certification of deductions may not apply in many cases.Medi-Cal eligibility data from the ISAWS counties show that few applicants provide infor-mation on income deductions. However, for some applicants (particularly those with earnedincome) these deductions can make the difference between being found eligible or not. Fur-ther, because the rules for determining net countable income vary among eligibility groups,applicants are asked to provide information on all potential deductions even if they are ulti-mately not used in the net income calculation.31 Allowing self-certification of deductionswould not eliminate for some applicants the problem of having to report information thatultimately may not be used to determine eligibility. However, self-certification would reduce

30. The use of a net income methodology allows people with higher incomes to obtain Medi-Cal coverage if fam-ily circumstances show special needs that translate into income deductions, such as child care expenses, edu-cational expenses, support paid to children living in another household, etc. Like many states, California usesincome deductions to expand coverage to individuals with the highest out-of-pocket costs associated withfull-time employment (e.g., child care costs, work-related transportation costs). If applicants do not docu-ment income deductions, they may not qualify for no-cost Medi-Cal or may only qualify for programs thatrequire premiums or cost-sharing (e.g., Healthy Families, Medically Needy program).

31. While income deductions are not always needed for applicants to meet the income standards, the Medi-Calapplication asks all applicants to report and document deductions they qualify for, causing some applicants totrack down and provide verifications of information that may ultimately not be used. In addition, eligibilityworkers are required to use all reported information to calculate net countable income, regardless of whatgross income is reported. Therefore, if deductions are reported on an application, the information may beused in the calculation of net income whether or not the applicant’s gross income already meets the incomestandard.


the documentation burden on all applicants with deductions, while still providing eligibilityworkers with sufficient information to determine the appropriate Medi-Cal eligibility group.

For eligibility workers, allowing self-certification of deductions would ease but not remove theburden associated with counting income. The major administrative impact of allowing self-certification of deductions is that eligibility workers would not need to follow up with appli-cants to collect deductions documentation. In addition, self-certification of deductions couldimprove retention (similar to self-certification of income as discussed above), which would re-duce administrative costs associated with people repeatedly gaining and losing eligibility.

Allowing self-certification would not completely eliminate the need for workers to obtaindocumentation from applicants. If self-certification of deductions were allowed, eligibilityworkers would be required to request documentation if they believed that the self-verified in-formation could be incorrect or fraudulent. According to California DHS, beneficiary fraud isnot a significant problem in the Medi-Cal program.32 However, unlike in the income docu-mentation arena, deduction information is not generally available from third-party sourcessuch as IEVS.

It is important to note that the administrative time saved for the eligibility worker under self-certification of deductions will likely be an extremely small proportion of the overall time spenton the intake and redetermination processes, because so few applicants report deductions.


Allowing self-certification of income deductions has many similar implications for programintegrity as allowing self-certification of income. One of the greatest similarities is that therules regarding allowable deductions are also highly specific and complex, and applicants caneasily violate these rules without realizing it when self-certifying.

For example, court-ordered child support paid to children living in other households is a legit-imate deduction from gross income. However, child-support amounts that exceed court-ordered amounts are not deductible from gross income for purposes of determining Medi-Caleligibility. The distinction might not be clear to some applicants without explanation bytrained eligibility workers; this clarification might not be made if the applicant self-certifiedthe deduction on a mail-in application. Thus, the state must design the application form care-fully so that applicants can self-report information in a manner that enables the worker tomake the proper calculations.

Because information on many types of deductions (e.g., child care) is not collected in central-ized databases the way income information is, it is more difficult for eligibility workers to relyon third-party sources to verify the accuracy of self-certified deduction information. If a



worker were to catch a potential error or questionable deduction, the applicant would have toprovide documentation so the worker could check to make sure the deduction was accuratelyaccounted for, lessening the time-saving advantages of allowing self-certification.

C. Shift Income Calculation from Net to Gross Methodology

California could change from a net income methodology to a gross income methodology to simplify the eligibility determination process for all applicants and enable workers to proc-ess most applications more quickly. With a gross income methodology, applicants would re-port their income and eligibility workers would compare the applicant’s gross income to theincome standard for each potential eligibility group. Families would not have to report anddocument expenses, and eligibility workers would not have to develop income budgets tocalculate net countable income.

This change would be a significant departure from current Medi-Cal eligibility determinationprocesses. It could also alter who is eligible for Medi-Cal, depending upon the income stan-dard used, because some currently eligible families have gross incomes above the current in-come standard but also have certain deductions, such as child care expenses, that lower theirnet countable income to an amount below the income standard.

The state would have two options for implementing this change, as described below.

Change Methodology for Counting Income and Increase the Income Standard

California could adopt a gross income methodology and raise the income standard above thecurrent 1931(b) Only standard of 100 percent of the federal poverty level.

Enrollment Impacts

If the state raised the income standard, it would be easier for families with deductions to applyfor Medi-Cal because they would no longer have to report and document their deductions. Itwould also make additional people newly eligible. Based upon figures derived from SIPP sur-vey modeling, each $1,000 increase in the annual Medi-Cal income standard would increasethe size of the population eligible for Medi-Cal by more than 100,000 people.

Option 1. For example, the state could set the new income standard at a high enough level toensure that higher-income people who would have previously qualified with deductions underthe net countable income methodology would still qualify if the deductions were no longercounted. Such a trade-off could well entail creating tens of thousands of newly eligible peoplein return for limited administrative relief for workers due to elimination of deduction-relatedwork for a small number of current program applicants. (As shown in Table 4, fewer than 6 percent of 1931[b] applicants currently report deductions.)


Option 2. The state could also set the new income standard at an intermediate level betweenthe current income standard and the higher standard (discussed above) that would be neededto ensure that all higher-income people who would have previously qualified with deductionsunder the net countable income methodology would still qualify. This would ensure that mostpeople who would have obtained eligibility with deductions would still be eligible. Under thisapproach, some people would be made newly eligible for Medi-Cal, and some, who had pre-viously qualified due to a large number of deductions, would now be denied. This amounts toa change in who is eligible for Medi-Cal. While only a portion of those newly made eligiblewould likely enroll, there would still be a large net enrollment impact associated with either ofthese approaches.


For applicants, changing to a gross income methodology would simplify the eligibility deter-mination process because they would not have to report and document expenses in most cases,depending upon the income standard used. In the case of the higher income standard, veryfew applicants (if any) would go through the second-level determination process by using thealternate net methodology, which would require them to report and document deductions.Under the intermediate income standard, more applicants would be subject to the alternatenet methodology. This alternative net methodology is a requirement of federal welfare reformmaintenance of effort regulations, as discussed below.

For eligibility workers, changing to a gross income methodology would save them the time re-quired to develop income budgets and calculate net countable income. This administrativeimpact would be maximized under the higher gross income standard described above.

If the income standard were raised to an intermediate level, the state would achieve only a par-tial reduction in administrative costs because some deduction-related work would still berequired. To comply with federal welfare reform maintenance of effort regulations, eligibilityworkers would have to apply an alternate net income methodology based on the TANF pro-gram (CalWORKs) to people who were not found eligible under gross income. This wouldrequire collecting information on income deductions from certain applicants and developingincome budgets. Workers would also have to apply the CalWORKs income standard, which isapproximately 61 percent of the 2002 federal poverty level—much lower than the 100 percentFPL income standard currently used for the 1931(b) group.


Use of a gross income methodology could improve the accuracy of eligibility determinations.Many eligibility errors occur during the calculation of net income. As these calculations wouldusually not have to be conducted with a gross income methodology, these errors would beeliminated. The only instance where calculation errors could occur would be in those few caseswhere the alternate net income evaluation would be required.


Change Methodology for Counting Income, but Maintain Income Standard

California could adopt a gross income methodology and use the current Medi-Cal incomestandards (e.g., 100 percent of the federal poverty level for the 1931[b] group).

Enrollment Impacts

Some families with gross incomes above 100 percent of the FPL who are currently eligible for1931(b) due to their deductions would lose eligibility for Medi-Cal. However, some peoplewith gross incomes above 100 percent FPL would retain eligibility due to the alternate netincome methodology (described above) required by the federal welfare reform maintenance ofeffort regulations. It is important to note that these applicants would need to have significantdeductions to reduce their net countable income to below 61 percent of the 2002 FPL. There-fore, this option also amounts to a change in who is eligible for Medi-Cal by reducing thenumber of eligible applicants.


For applicants, changing to a gross income methodology would simplify the eligibility deter-mination process because families would not have to report and document expenses in somecases. However, if the current income standard were maintained, a number of applicantswould be subject to the second-level determination process using the alternate net methodol-ogy, which would require them to report and document deductions under the federal welfarereform requirements.

For eligibility workers, changing to a gross income methodology would save them the timerequired to develop income budgets and calculate net countable income. As noted above, thestate must apply an alternate set of rules to people who are not found eligible under gross in-come. The requirement to apply an alternate set of rules required by the federal welfare reformmaintenance of effort regulations for some people lessens the time-savings associated withmoving to a gross income methodology.


Use of a gross income methodology could improve the accuracy of eligibility determinationsto the extent that workers would no longer be required to calculate net income. Many eli-gibility errors occur during the calculation of net income. As these calculations would usu-ally not have to be conducted with a gross income methodology, these errors would be elim-inated. The only instance where calculation errors could occur would be in those cases where the alternate net income evaluation would be required under the federal welfare reformrequirements.


Few States Use the Gross Income Methodology

Massachusetts, South Dakota, and the District of Columbia have chosen to use a gross incomemethodology.33 States have found that changing to a gross income methodology in conjunc-tion with raising the income standard is an effective way to expand coverage. Simplification ofthe eligibility determination process is a beneficial byproduct but not typically the primarymotivation for the change. For example, the District of Columbia established a gross incomemethodology to determine eligibility for families with children under age 19 in order to ex-pand the Medicaid-eligible population in the District. To determine eligibility, income be-tween the District’s AFDC standard on July 16, 1996, and 200 percent of the FPL isdisregarded. The District still allows deductions for child care expenses and other federallymandated disregards. Because the change expanded Medicaid to cover children who previ-ously would not have been eligible, the District receives enhanced SCHIP matching funds.34

D. Estimate of Potential Impacts of Self-Certification of Income

Because self-certification of income would affect the most applicants and produce the greatestadministrative savings while maintaining current eligibility levels, this option was selected forfurther study and modeling. Other options discussed would have less of a simplification im-pact. Specifically, fewer applicants would take advantage of self-certification of deductionsthan self-certification of income. Further, changing from a net to gross methodology involvesa series of changes that would either affect the income standard or require eligibility workers tocontinue to implement an alternate net income methodology required by federal welfare re-form maintenance of effort regulations, which would diminish administrative time savings.

Self-Certification of Income May Help People Who Are Eligible to Become Enrolled

The potential enrollment impact of allowing applicants to self-certify their income at the timeof application has been modeled using the same approach that was used to model the impactof self-certification of assets, and then using those estimates as a benchmark. The methodologyused to derive these estimates is described in detail in the companion report, Simplifying Medi-Cal Enrollment: Technical Report on the Assets and Income Tests. Additional information regard-ing the potential effects of self-certification of income was gathered through interviews withother states and California DHS and county staff.

As with assets, permitting 1931(b) Only applicants to self-certify income creates two potentialsources of increased enrollment: those eligible but not enrolled, and those who certify they areeligible but are, in fact, not eligible. The second source of enrollment (new enrollment fromineligible people who fraudulently claim that their income is below Medi-Cal eligibility

33. State Policy Documentation Project, “Countable Income Test and Earnings Disregard Policies Used to De-termine Medicaid Eligibility of Families with Children,” February 16, 2000.

34. The Centers for Medicare and Medicaid Services. October 2001. Enrolling and Retaining Low-Income Fami-lies and Children in Health Care Coverage.


thresholds) was not believed to be meaningful. It is unlikely that self-certification would en-courage fraud, since many applicants are already allowed to self-certify their income as a lastresort; the Income Eligibility Verification System (IEVS) will be used to check reportedincome even under self-certification; and people inclined to fraudulently obtain Medi-Calalready have means of doing so. However, DHS will likely invest in additional monitoring ac-tivities to assess the degree to which those who were self-certifying income might be misstatingtheir family incomes. This additional monitoring may be required to demonstrate the accu-racy of eligibility determinations to the federal government.35

The greater source of potential additional enrollment would be the large population of eligiblebut not enrolled individuals who have not come forward to apply, or who apply but do notcomplete the enrollment process. Given that the key purpose of self-certification of income(and/or assets, for that matter) would be to lessen the barriers for this subgroup to comeforward, it is anticipated that self-certification of income would spur people to both apply andcomplete the enrollment process when they do apply. On a percentage basis, however, a large-scale influx is not expected to occur.

Enrollment Impacts Can Be Estimated Through Modeling

In our assets test modeling, the best estimate assumed that only 0.75 percent of the 1931(b)Only eligible but currently uninsured population would enroll if self-certification of assetswere allowed.

In adjusting the assets self-certification figures to estimate the enrollment impact of self-certification of income, two factors were considered. First, far more people have income thanhave assets, so self-certification would ease the enrollment process for nearly all 1931(b) Onlyapplicants. Among California’s uninsured 1931(b) Only eligible population (as identified inthe SIPP modeling—see the companion piece Simplifying Medi-Cal Enrollment: Technical Re-port on the Assets and Income Tests), 92 percent of the families reported an annual income above$1,000, meaning almost all applicants must report and document income. However, only 23percent reported monetary assets (savings accounts, checking accounts, retirement funds,stocks and bonds) of greater than $100. Thus, most applicants have no assets to document.Self-certification of income would lessen the application burden for four times as many peopleas would self-certification of assets.

Secondly, California has already begun the process of simplifying the income documentationrequirements so that for most applicants with employment income, income verification cur-

35. The Improper Payments Information Act of 2002, signed by President Bush on November 26, 2002, requireseach federal agency to estimate the annual amount of improper payments and include that estimate in itsannual budget submission. Payments include those made on behalf of “ineligible recipients.” In addition,Office of Management and Budget Circular A-11, Exhibit 57B, requires the Department of Health andHuman Services to measure and report on the accuracy of state agency eligibility determinations and claimspayments for Head Start, Medicare, Medicaid, TANF, Foster Care-Title IV-E, SCHIP, and the Child Careand Development Fund.


rently requires one pay stub. Conversely, assets documentation can be much more difficult forapplicants to obtain. Among those cases where people have income and assets to document,the applicants’ effort involved in documenting their income was conservatively estimated to beone-half that of documenting their assets. Given the level of effort for applicants, coupled withthe larger number of affected individuals, self-certification of income was estimated to havetwice the impact on enrollment when compared with assets.

Table 5 presents each enrollment component, as well as the resulting estimates for self-certification of income. The best estimate is that 1.5 percent of uninsured, 1931(b) Only eligible(but unenrolled) people would apply for Medi-Cal and be found eligible if self-certification ofincome were permitted. All other modeling assumptions and steps were identical to those usedin quantifying the enrollment and medical cost impacts of self-certification of assets (e.g., thecomposition of new enrollees between child/adult and managed care/fee-for-service, averagecosts per added enrollee), which are explained in the companion report, Simplifying Medi-CalEnrollment: Technical Report on the Assets and Income Tests.

Thus, since income self-certification take-up rates are double those used for assets self-certification, the enrollment and medical cost impacts are also exactly doubled. Table 6 pre-sents these impacts.

Table 5. Take-Up Rates Used for Self-Certification of Income

Best Estimate

Enrollment take-up rate assumed for self-certification of assets* 0.75%

Factor for size of population with meaningful income versus size 4.0of population with monetary assets

Factor for assumed level of effort involved for applicants in documenting 0.50income versus assets

Take-up rate for self-certification of income 1.50%

*Take-up rates represent the percentage of uninsured 1931(b) Only eligibles who would obtain Medi-Cal coverage if self-certification were permitted.

Table 6. Enrollment and Medical Cost Impacts of Self-Certification of Income*

Best Estimate†



Newly eligible 0





*Administrative savings are presented in Table 7.†Numbers may not total due to rounding.‡In FFY 2003, California’s state share of both medical and administrative costs is approximately 50 percent.


Note that an alternative modeling approach was taken to either validate or refute the results ofthe above approach. This approach involved developing an enrollment estimate based on thedata provided by the ISAWS system, which is used to process eligibility in 35 California coun-ties encompassing approximately 15 percent of the state’s 1931(b) Only enrollees. Statewideextrapolations from ISAWS data—as well as from data provided by San Diego County—indicate that approximately 1,060,000 people who have applied for Medi-Cal are deniedcoverage. While the reasons for these denials are often not well specified in existing data, 1.2percent of denials—12,720 people—are for unverified earnings. It is assumed that many, ifnot all, of these 12,720 people would be covered if self-certification of income were permitted.Additionally, 31.8 percent of the ISAWS denials are for “refusal to comply” with require-ments.36 It is assumed that most of the ISAWS applicants, who are in fact eligible but droppedout of the process, are in this subgroup.

Working with these data, and also estimating the degree to which the existence of self-certification of income might draw new applicants forward who would not otherwise apply forcoverage, a second estimate was made that yielded a best estimate enrollment impact of ap-proximately 11,500 people, and an upper bound impact of approximately 21,000 people—anincrease of less than 1 percent of total Medi-Cal enrollment. These figures are well matchedwith the enrollment estimates shown in Table 6. Thus, the second methodology served to vali-date the projections.

Self-Certification of Income Would Save Time

Self-certification of income would create eligibility worker time savings since the county eligi-bility worker would no longer need to collect pay stubs and/or documentation of self-employed income (see Table 3). This would be a very small time savings in the scheme of thecounty worker’s overall effort in processing an application. Under self-certification, eligibilityworkers would still need to conduct most of the income-related work that currently takesplace:

▪ Entering income data into the eligibility system;

▪ Verifying income through IEVS and other third-party sources;

▪ Applying appropriate income deductions to calculate net countable income;and

▪ Creating/assessing budget sheets regarding which eligibility group the appli-cant may be able to access.

It is estimated that the time savings per 1931(b) intake created by self-certification of incomewould be, on average, 2.5 percent. This assumption, applied to the same methodology used to

36. Other common reasons for denial in the ISAWS data include “withdrawal,” “cancellation,” and “other—reason not listed.” The ISAWS system does not have a reason code titled “failure to provide.”


derive assets test administrative impacts, yields an annual savings of $4.2 million. As with alladministrative dollar impacts, such savings are dependent upon DHS acting to reduce pay-ments to counties by this amount.

Self-certification of income would also create some modest offsetting increases in administra-tive costs.37 It is estimated that approximately 3,000 new intakes would occur each year, at anannual cost of $420,000. The companion piece Simplifying Medi-Cal Enrollment: Technical Re-port on the Assets and Income Tests, provides details of the methodology for deriving adminis-trative cost savings. In addition, the policy change is projected to create 24,000 additionalcase-months of coverage, creating added case maintenance costs of $540,000. It is anticipatedthat DHS would monitor the self-certification program to assess whether an increase in fraud-ulent or inaccurate income reporting were occurring. Based on interviews with DHS staff, theannual cost of this monitoring effort is projected to be $250,000. In summary, the adminis-trative impacts would yield an annual savings of $3 million (state and federal shares), as shownin Table 7.

Summary of Cost and Enrollment Impacts

As noted above, allowing self-certification of income at the time of application may help peo-ple who are eligible to become enrolled. Self-certification of income would create administra-tive time savings but would also create some modest offsetting increases in administrativecosts. The net effects of these impacts are summarized in Table 8.

37. However, modifying the documentation requirements for Medi-Cal redetermination could help more peoplestay on Medi-Cal; this would reduce administrative costs associated with people repeatedly gaining and los-ing eligibility.

Table 7. Projected Administrative Impacts of Self-Certification of Income*

Administrative Area Annual Costs/(Savings)†

Savings of reduced eligibility worker time per intake ($4,176,000)

Increased costs of new intakes $421,342

Increased cost of case maintenance $536,456

Increased program monitoring $250,000

Total Annual Costs/(Savings)–State and Federal Shares ($2,968,202)

Total Annual Costs/(Savings)–State-Only Share‡ ($1,484,101)

*All figures reflect the best estimates.†Numbers may not total due to rounding.‡In FFY 2003, California’s state share of both medical and administrative costs is approximately 50 percent.


Table 8. Best Estimates of Potential Enrollment, Medical Cost, and Administrative

Impacts of Allowing Self-Certification of Income for 1931(b) Only Families*

Annual Costs/(Savings)†



Newly eligible 0





Annual Net Administrative Savings

State and federal share ($2,968,202)

State-only share‡ ($1,484,101)

Annual Net Costs/(Savings)



*All figures reflect the best estimates.†Numbers may not total due to rounding.‡In FFY 2003, California’s state share of both medical and administrative costs is approximately 50 percent.

IV. Conclusion

The Medi-Cal enrollment process is inherently complex and poses challenges for both appli-cants and county eligibility workers. However, California has considerable flexibility in deter-mining how to apply the income test to the Medi-Cal eligibility determination process, andhas opportunities to simplify the process in many ways. This report discussed three potentialoptions for simplifying the Medi-Cal income test:

1. Allowing self-certification of income;

2. Allowing self-certification of income deductions; and

3. Changing the methodology used to count income.

These changes to the income test would make it easier for eligible people to enroll in Medi-Caland, once enrolled, retain their eligibility. These simplification measures would also createtime savings for applicants and eligibility workers and reduce the amount of paperworkneeded to process a Medi-Cal application. The findings presented in this report suggest thatself-certification of income would have the greatest potential benefit to applicants and eligibil-ity workers. As California struggles with record state-budget shortfalls, simplification strategiesthat reduce the costs of program administration while improving Medi-Cal enrollment are im-portant to explore. Further, at a time when counties are facing their own budget shortfalls andeligibility workers are experiencing rising caseloads per worker, the administrative advantagesof eligibility simplifications may be particularly important to consider.


476 Ninth StreetOakland, CA 94607tel: 510/286-8976fax: 510/238-1382www.medi-cal.org

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simplifying medi-cal enrollment: options for the income test

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