News Room

Enhanced Human Services Systems Improvement Under the Cost Allocation Waiver

April 9, 2018 | Author: HealthTech Solutions



Unless the Office of Management and Budget and the U.S. Departments of Health and Human Services and Agriculture act at the end of calendar year 2018, an important waiver which has been beneficial to states will expire. This cost allocation waiver currently allows state Medicaid programs to integrate their eligibility and enrollment systems with other human services programs while using Medicaid’s optimal contribution of federal matching funds. Non-Medicaid agencies can leverage the Medicaid systems development efforts at no cost other than development costs associated with customizations or configurations required uniquely for their programs.


The need for a continued waiver of cost allocation in ongoing human services systems design, development, and implementation remains critical to improved outcomes for the Medicaid and related human services programs. Without this financial support, it is unlikely that isolated and siloed systems for human services will be modernized and enabled to meaningfully exchange information efficiently, quickly, and easily to achieve an optimal customer experience and improved program outcomes.





For many years, states had little financial incentive to modernize many critical IT systems. The Centers for Medicare and Medicaid Services (CMS) only offered optimal federal contributions to states for the improvement of the Medicaid Management Information Systems (MMIS). The MMIS is the critical hub of Medicaid provider enrollment, enumeration, and reimbursement. CMS paid 90, 75, or 50 percent for these projects.


However, several other Medicaid and human services programs have critical IT systems that have not been modernized. Prior to the Affordable Care Act (ACA), this was primarily because of lackluster funding opportunities for updating these systems. Generally, the federal government only paid 50 percent of such projects. This includes systems such as the Medicaid eligibility and enrollment (E&E) systems, and application and enrollment systems for nutrition, cash and heating assistance, child support, and foster care.


When the ACA was written, policymakers were aware that there would be dramatic changes to the Medicaid and CHIP eligibility and enrollment components of the program, as well as requirements for these programs to exchange electronic information with other systems — including the state and federal healthcare marketplaces. To that end, the ACA included enhanced federal funds for Medicaid E&E system modernization. The federal matching rate for eligibility and enrollment systems was raised to match the MMIS rate. That is, federal matching funds increased from 50 to 90 percent for new development, and from 50 to 75 percent for portions of the ongoing maintenance and operations (M&O). The regulations detailed CMS’ Seven Conditions and Standards that must be met in order to secure these federal funds.


Following the ACA, CMS established additional policy objectives to further expand the use of advantageous federal IT funding for modernized systems. The new policies emphasized efficiency, better customer experiences, and more thoughtful enterprise-wide planning and implementation.


The challenge was that cost allocation across the benefitting entities was typically required for new IT builds that efficiently support multiple programs. required cost allocation across the benefitting entities. The federal Office of Management and Budget (OMB) has a prohibition on releasing federal funds without proper cost allocation between the benefitting federal, state, and private entities. This is detailed in federal regulations at 2 Code of Federal Regulations (CFR) Part 225, and then again moved to 2 CFR Part 200, but is more commonly known by its preceding title, before it was codified in regulations, “OMB Circular A-87.” The purpose is to ensure all entities that benefit from systems development pay their fair share and do not exploit the federal government’s matching contributions.


The original 2011 regulations issued by CMS allowed for a brief waiver of some of the cost allocation principles to achieve the goals of integrated human services systems. A policy directive in January 2012 further clarified how this flexibility applied to shared systems in the human services enterprise. When that flexibility was set to expire in 2015, CMS issued additional policy guidance to extend the cost allocation waiver until December 31, 2018.


Relevant Federal Guidance Regarding Cost Allocation and Modern, Efficient Human Services Systems Design and Development
Date Policy Guidance
April 19, 2011 42 CFR Part 433 Medicaid Program; Federal Funding for Medicaid Eligibility Determination and Enrollment Activities; Final Rule
April 2011 Guidance for Exchange and Medicaid Information Technology (IT) Systems Version 2.0 May, 2011
April 2011 Enhanced Funding Requirements: Seven Conditions and Standards Medicaid IT Supplement (MITS-11-01-v1.0) Version 1.0
January 23, 2012 Tri-Agency Policy Directive on the Cost Allocation Waiver Principles #1
October 5, 2012 Supplemental Guidance on Cost Allocation for Exchange and Medicaid Information Technology (IT) Systems Questions and Answers
November 2012 Medicaid and CHIP FAQs: Enhanced Funding for Eligibility and Enrollment Systems (90/10)
July 20, 2015 Tri-Agency Policy Directive on the Cost Allocation Waiver Principles #2
December 3, 2015 Fact Sheet: Mechanized Claims Processing and Information Retrieval Systems (90/10) Final Rule (CMS 2392-F)



December 4, 2015 Medicaid Program; Mechanized Claims Processing and Information Retrieval Systems (90/10)
March 31, 2016 SMD# 16-004 Mechanized Claims Processing and Information Retrieval Systems-Enhanced Funding

Benefits of shared solutions and enterprise-wide system development


The integration of Medicaid eligibility and enrollment systems with our human services systems has created the opportunity for substantial return on investment and improved customer service. For example, with systems that talk to one another across human services (e.g., health insurance, nutrition programs, cash and heating assistance, and child support), there is greater potential to identify waste, fraud, and abuse. It also allows the state to offer a “no wrong door” approach for eligibility applications, which increases efficiency for the applicant, as well as for case workers, and the systems needs for states. A state can use one identity-proofing gateway, rather than many. This also creates better identity management processes across the human services enterprise. State analytical teams can better isolate social determinants of health, successful interventions, and other program statistics. In light of recent federal policy allowing states to leverage so-called “work requirements,” on Medicaid consumers, states would also be able to more efficiently track employment information across multiple human services programs.


In the case of integrated eligibility and enrollment systems, Medicaid offers the most advantageous funding arrangement to states, but Medicaid also stands to gain more from the efficiencies. Since health-related outcomes are heavily weighted by social determinants of health (e.g., education, housing, nutrition), Medicaid agencies stand to gain significantly by measuring program interventions, uniquely identifying consumers and providers across services, and properly accounting for reimbursements. However, the cost allocation flexibility of Medicaid funding does not apply to systems or features that do not benefit the Medicaid program.


Due to the ACA changes in 2010, states and federal agencies have been demanding interoperable and interfaceable systems that will meaningfully exchange data. In the most ideal state, customers – which include providers, employees, consumers, and constituents – would enter data and applications in one place and that information would be reused throughout the enterprise. It is not efficient or sustainable for government systems to repeatedly request the same information from individuals. This problem has significantly improved for states with modernized Medicaid E&E systems that also targeted the integration of other human service programs.


HHS’ Assistant Secretary for Planning and Evaluation (ASPE) directed a research brief in 2016. Ultimately, the survey results reflected the previous six years of funding incentives directed towards E&E systems integrations. While the ASPE research results largely describe only E&E systems, there is a lot to be learned from how states collectively approached modernizing and sharing these systems that can be applied to other solutions. For example:


  • Two-thirds of states had integrated eligibility and enrollment (E&E) systems shared between Medicaid and at least one other human services program. 32 of the 46 survey respondents integrated their Medicaid E&E system as follows:


31 states include SNAP
31 states include TANF
26 states include CHIP
15 include child care
14 include LIHEAP
28 exchange data with the Marketplace


  • Most states appear to be upgrading these systems and moving to features like real-time eligibility verifications
  • Data sharing across programs is most common when the programs are in the same agency due to issues around systems governance, service level agreements, consent management, and data sharing agreements
  • Most agencies had in place a master client index that performed identity management across multiple programs
  • The biggest difference since 2010 was in programs with real-time eligibility verification capabilities; the agencies reporting that they are still unable to do this were more likely to lack an integrated eligibility system



Current issue: Expiration of the cost allocation waiver


In the most recent policy missives from CMS on this topic, federal officials said that the original cost allocation waiver would terminate in December 2018, and states should expect to resume operations without the waiver. However, states are seeing better results and a lot of value when they have had successful integrated systems and shared services. Additionally, human services technology projects are often complex and take time to plan and implement. Therefore, states will benefit from additional time to maximize the federal contribution and continue building modern eligibility and enrollment systems that serve the needs of multiple human services programs. The other human services programs have insufficient federal contribution which prevents states from prioritizing these systems improvements.


CMS, TANF, AFDC, and state human services programs stand to gain by creating truly integrated enterprise systems architectures that meet program goals, best serve the enrollees, and allow for comprehensive and state-of-the-art data analytics. States and the federal government would greatly benefit by continuing the exception of cost allocation rules to meet program objectives and achieve the best, most efficient technical architectures and systems solution for the next generation of the human services enterprise.