U.S. Insular Areas
Multiple Factors Affect Federal Health Care Funding Gao ID: GAO-06-75 October 14, 2005Five insular areas of the United States--American Samoa, the Commonwealth of the Northern Mariana Islands (CNMI), Guam, Puerto Rico, and the U.S. Virgin Islands--benefit from federal health care financing and grant programs that help fund health care services to their over 4 million residents. However, notable differences exist in how the programs are funded or operate in the insular areas, such as statutory limits on federal Medicaid funding to the insular areas that do not apply in the states. To help understand these differences, GAO was asked to identify (1) the key sources of federal health care funding in the insular areas, (2) differences between insular areas and the states in the methods used to allocate these funds, and (3) differences in spending levels per individual between insular areas and the states. In commenting on a draft of this report, American Samoa, CNMI, and Puerto Rico suggested the need for additional information on certain issues, such as implications of statutory limits on federal Medicaid spending and a more comprehensive analysis of local circumstances that affect the availability and costs of health care services.
Multiple federal programs fund health care services in the insular areas. Federal health care financing programs--Medicare, Medicaid, and the State Children's Health Insurance Program (SCHIP)--represented nearly 90 percent of the $2.2 billion in health care funding to these areas in fiscal year 2003, with Medicare alone representing over three-quarters of total funding. The Departments of Health and Human Services (HHS) and the Interior (DOI) also provide grants to the insular areas. Significant variation exists among the insular areas in terms of the distribution of funds by these sources, largely due to the number of Medicare beneficiaries in each area. The methods used to allocate these federal funds to insular areas often differ from methods used in the states. For example, Medicare pays hospitals in most insular areas based on their costs rather than the prospective payment system used for most hospitals in the states. Similarly, federal funding for Medicaid and SCHIP is subject to statutory limits that do not apply to states, including minimum federal contributions and a cap on federal Medicaid payments. In addition, certain HHS grants use different rules to determine insular areas' funding. Differences in allocation methods as well as other factors contribute to lower spending levels per individual in the insular areas compared to the states. For example, Medicare spending per beneficiary in the insular areas was less than half the amount it was in the states, due in part to differences in payment policies and to beneficiaries' lower utilization of services. In addition, the statutory limits on federal Medicaid funding in these areas contributed to lower federal Medicaid per capita payments in the five insular areas compared to the national average. However, in light of limits on federal funding, the insular areas are not held accountable for covering all Medicaid benefit requirements, such as nursing facility services that represent nearly one-third of Medicaid expenditures in the states. Insular areas benefit from certain HHS grant allocation formulas that result in higher per capita payments to them than the states, on average.
GAO-06-75, U.S. Insular Areas: Multiple Factors Affect Federal Health Care Funding
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Report to Congressional Requesters:
United States Government Accountability Office:
GAO:
October 2005:
U.S. Insular Areas:
Multiple Factors Affect Federal Health Care Funding:
GAO-06-75:
GAO Highlights:
Highlights of GAO-06-75, a report to congressional requesters:
Why GAO Did This Study:
Five insular areas of the United States”American Samoa, the
Commonwealth of the Northern Mariana Islands (CNMI), Guam, Puerto Rico,
and the U.S. Virgin Islands”benefit from federal health care financing
and grant programs that help fund health care services to their over 4
million residents. However, notable differences exist in how the
programs are funded or operate in the insular areas, such as statutory
limits on federal Medicaid funding to the insular areas that do not
apply in the states. To help understand these differences, GAO was
asked to identify (1) the key sources of federal health care funding in
the insular areas, (2) differences between insular areas and the states
in the methods used to allocate these funds, and (3) differences in
spending levels per individual between insular areas and the states.
In commenting on a draft of this report, American Samoa, CNMI, and
Puerto Rico suggested the need for additional information on certain
issues, such as implications of statutory limits on federal Medicaid
spending and a more comprehensive analysis of local circumstances that
affect the availability and costs of health care services.
What GAO Found:
Multiple federal programs fund health care services in the insular
areas. Federal health care financing programs”Medicare, Medicaid, and
the State Children‘s Health Insurance Program (SCHIP)”represented
nearly 90 percent of the $2.2 billion in health care funding to these
areas in fiscal year 2003, with Medicare alone representing over three-
quarters of total funding. The Departments of Health and Human Services
(HHS) and the Interior (DOI) also provide grants to the insular areas.
Significant variation exists among the insular areas in terms of the
distribution of funds by these sources, largely due to the number of
Medicare beneficiaries in each area.
Key Federal Health Care Funding Sources to Five Insular Areas, by
Percentage, Fiscal Year 2003:
[See PDF for image]
[End of figure]
The methods used to allocate these federal funds to insular areas often
differ from methods used in the states. For example, Medicare pays
hospitals in most insular areas based on their costs rather than the
prospective payment system used for most hospitals in the states.
Similarly, federal funding for Medicaid and SCHIP is subject to
statutory limits that do not apply to states, including minimum federal
contributions and a cap on federal Medicaid payments. In addition,
certain HHS grants use different rules to determine insular areas‘
funding.
Differences in allocation methods as well as other factors contribute
to lower spending levels per individual in the insular areas compared
to the states. For example, Medicare spending per beneficiary in the
insular areas was less than half the amount it was in the states, due
in part to differences in payment policies and to beneficiaries‘ lower
utilization of services. In addition, the statutory limits on federal
Medicaid funding in these areas contributed to lower federal Medicaid
per capita payments in the five insular areas compared to the national
average. However, in light of limits on federal funding, the insular
areas are not held accountable for covering all Medicaid benefit
requirements, such as nursing facility services that represent nearly
one-third of Medicaid expenditures in the states. Insular areas benefit
from certain HHS grant allocation formulas that result in higher per
capita payments to them than the states, on average.
www.gao.gov/cgi-bin/getrpt?GAO-06-75.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Kathryn G. Allen at (202)
512-7118 or allenk@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Multiple Federal Agencies Fund Health Care Services in Insular Areas:
Notable Differences Exist in Methods Used to Allocate Federal Health
Care Funds in the Insular Areas Compared to the States:
Multiple Factors Explain Differences in Individual Spending Levels in
Insular Areas Compared to the States:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Changes in Insular Area Health Care Funding Proportions
over Time:
Appendix III: Characteristics of Insular Areas' Medicaid Programs:
Appendix IV: Comments from the Department of the Interior:
Appendix V: Comments from American Samoa:
Appendix VI: Comments from the Commonwealth of the Northern Mariana
Islands:
Appendix VII: Comments from the Commonwealth of Puerto Rico:
Appendix VIII: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Medicare-Certified Healthcare Providers and Hospital Beds in
Insular Areas and States, January 2005:
Table 2: Formula Components for CDC's Public Health Preparedness and
Response for Bioterrorism Grant:
Table 3: Mandatory Medicaid Services Covered by Insular Areas and
States, Fiscal Year 2005:
Table 4: Federal Health Care Spending for Five Insular Areas, Fiscal
Years 1999 through 2003:
Table 5: Federal Health Care Spending for American Samoa, Fiscal Years
1999 through 2003:
Table 6: Federal Health Care Spending for CNMI, Fiscal Years 1999
through 2003:
Table 7: Federal Health Care Spending for Guam, Fiscal Years 1999
through 2003:
Table 8: Federal Health Care Spending for Puerto Rico, Fiscal Years
1999 through 2003:
Table 9: Federal Health Care Spending for the Virgin Islands, Fiscal
Years 1999 through 2003:
Table 10: Comparison of Federal Medicaid Categorical and Income
Eligibility Standards to Insular Area Standards, Fiscal Year 2004:
Table 11: Summary of Certain Optional Medicaid Services Covered by
Insular Areas and States, Fiscal Year 2005:
Figures:
Figure 1: Insular Areas and United States Demographics and Health
Indicators:
Figure 2: Key Federal Health Care Funding Sources for Five Insular
Areas, Fiscal Year 2003:
Figure 3: Key Federal Health Care Funding Sources by Insular Area,
Fiscal Year 2003:
Figure 4: Medicare Spending Per Beneficiary in Five Insular Areas
Compared to the States, Fiscal Year 2003:
Figure 5: Number of Medicare Part B Major Medical Procedures Per 1,000
Beneficiaries in Selected States and Insular Areas, Calendar Year 2003:
Figure 6: Federal Medicaid Per Capita Funding in Selected States and
Insular Areas, Fiscal Year 2003:
Figure 7: Per Capita Funding to Insular Areas and Selected States for
CDC's Bioterrorism Grant, Fiscal Year 2003:
Figure 8: Ratio of Federal Funding Sources for Five Insular Areas,
Fiscal Years 1999 through 2003:
Figure 9: Ratio of Federal Health Care Funding Sources for American
Samoa, Fiscal Years 1999 through 2003:
Figure 10: Ratio of Federal Health Care Funding Sources for CNMI,
Fiscal Years 1999 through 2003:
Figure 11: Ratio of Federal Health Care Funding Sources for Guam,
Fiscal Years 1999 through 2003:
Figure 12: Ratio of Federal Health Care Funding Sources for Puerto
Rico, Fiscal Years 1999 through 2003:
Figure 13: Ratio of Federal Health Care Funding Sources for the Virgin
Islands, Fiscal Years 1999 through 2003:
Abbreviations:
AS: American Samoa:
CDC: Centers for Disease Control and Prevention:
CMS: Centers for Medicare & Medicaid Services:
CNMI: Commonwealth of the Northern Mariana Islands:
DOI: Department of the Interior:
DSH: disproportionate share hospital:
EPSDT: Early and Periodic Screening, Diagnostic, and Treatment:
ESRD: end stage renal disease:
FMAP: federal medical assistance percentage:
FPL: federal poverty level:
FQHC: federally qualified health center:
GU: Guam:
HHS: Department of Health and Human Services:
HIV: human immunodeficiency virus:
HIPAA: Health Insurance Portability and Accountability Act of 1996:
HPSA: health professional shortage area:
HRSA: Health Resources and Services Administration:
MMA: Medicare Prescription Drug, Improvement, and Modernization Act of
2003:
MUA: medically underserved areas:
NF: nursing facility:
NIH: National Institutes of Health:
OIA: Office of Insular Affairs:
PPS: prospective payment system:
PR: Puerto Rico:
PSA: physician scarcity areas:
RHC: rural health clinic:
SAMHSA: Substance Abuse and Mental Health Services Administration:
SCHIP: State Children's Health Insurance Program:
SSI: Supplemental Security Income:
TAGGS: Tracking Accountability in Government Grants System:
TEFRA: Tax Equity and Fiscal Responsibility Act of 1982:
VI: Virgin Islands:
United States Government Accountability Office:
Washington, DC 20548:
October 14, 2005:
Congressional Requesters:
The five largest insular areas of the United States--American Samoa,
the Commonwealth of the Northern Mariana Islands (CNMI), Guam, Puerto
Rico, and the U.S. Virgin Islands--and their more than 4 million
residents have a unique relationship with the federal
government.[Footnote 1] With the exception of American Samoa, those
born in the insular areas are U.S. citizens; however, insular area
residents are not afforded all of the rights of citizens residing in
the 50 states.[Footnote 2],[Footnote 3] Although numerous federal
health care financing and social programs--including Medicare, the
federal health care program for the elderly and disabled, and Medicaid,
the joint federal-state program that finances health care for certain
low-income individuals--have been extended to insular area residents to
varying degrees, notable differences exist in how these programs are
funded or operate in the insular areas compared to the states. For
example, the insular areas are subject to statutory limits on federal
Medicaid funding that do not apply to the states. To help understand
these differences, you asked us to identify (1) the key sources of
federal health care funding in the insular areas, (2) the extent to
which the methods used to allocate these sources of health funds differ
from the methods used in the states, and (3) how spending levels per
individual from these key sources differ between insular areas and the
states.
To identify key sources of health care funding to the insular areas, we
reviewed the Census Bureau's Consolidated Federal Funds Report and
interviewed officials at the Departments of Health and Human Services
(HHS) and the Interior (DOI) as well as officials from each of the five
insular areas. For the key sources identified, we obtained
comprehensive health expenditure data for federal fiscal years 1999
through 2003 from the respective agencies. To assess the reliability of
HHS and DOI data, we discussed data quality control procedures and
reviewed relevant documentation with officials. We determined the data
were sufficiently reliable for the purposes of this report.
To determine the extent to which methods used to allocate funds to the
insular areas differ from those used in the states, we reviewed federal
laws and guidance on this funding and interviewed agency and insular
area officials. To determine the extent to which spending levels per
individual from these key sources differ between insular areas and the
states, we examined trends in program expenditures between states and
insular areas. To assess the reliability of the program expenditure
data, we reviewed relevant documentation, interviewed agency officials
about the data, and conducted electronic data testing. We determined
that the program expenditure data were sufficiently reliable for the
purposes of this report. We conducted our work from October 2004
through September 2005 in accordance with generally accepted government
auditing standards. (For additional information on our methodology, see
app. I.)
Results in Brief:
Multiple federal programs, such as federal health care financing
programs and various HHS and DOI grant programs, fund health care
services in the insular areas. In fiscal year 2003, funding from these
sources to the five insular areas totaled $2.2 billion. Medicare was
the single largest source of health care funding, representing over
three-quarters of total funding. When funding from the other federal
health care financing programs--Medicaid and the State Children's
Health Insurance Program (SCHIP)--is added to the Medicare total, the
federal health care financing programs represented nearly 9 of every 10
federal dollars spent in the five insular areas. However, because
Puerto Rico represents over 90 percent of the total insular area
population, the aggregate spending numbers mask the often significant
variation that exists in the sources of funding among the insular
areas. Specifically, while the proportion of federal spending by source
in Puerto Rico largely mirrored the aggregate numbers, health care
grant funding represented a much larger proportion of health care
funding in the other four insular areas, largely due to their
comparatively smaller Medicare populations. For example, grant funding
represented about 56 percent of total funding in American Samoa in
fiscal year 2003 but only 11 percent of total funding in Puerto Rico.
In addition, the extent to which the insular areas relied on grant
funding often fluctuated significantly from year to year. For example,
from fiscal years 1999 through 2001, DOI funding to CNMI grew from 2 to
26 percent of total health care funding and fell back to 2 percent in
2003.
Notable differences exist in methods used to allocate federal health
care funds in the insular areas compared to the states, and these
differences are often statutory in nature. For example, while most
hospitals in the states and Puerto Rico are paid under Medicare's
inpatient prospective payment system (PPS),[Footnote 4] hospitals in
the other insular areas are not included in the PPS statutory provision
and are instead paid based on their costs. Similarly, under the new
Medicare prescription drug benefit, to be implemented in January 2006,
certain low-income beneficiaries in the insular areas will not receive
direct subsidies to help pay for their premiums, deductibles, and
copayments that are available to certain beneficiaries in the states.
Instead, CMS will provide each insular area with an allotment, which
they will then use to administer the program to low-income
beneficiaries based on a locally developed plan. In addition, federal
funding for the Medicaid and SCHIP programs in the insular areas is
subject to statutory limits that do not apply to states. For example,
the statutory formula used to calculate the federal share of a state's
Medicaid expenditures, which results in a higher federal share of
Medicaid expenditures in poorer states, does not apply to the insular
areas. In contrast, the federal contribution to the insular areas is
set by statute at the minimum rate available to states, although nearly
all of the insular areas have a lower median household income than the
poorest state. In addition, unlike the states, where there are no caps
on the federal share of Medicaid funding as long as the state
contributes its share of program expenditures, federal Medicaid funding
in the insular areas is subject to an annual statutory cap. Although
similar methods are used to allocate some HHS grants to states and
insular areas, other grants use separate rules to determine funding
amounts in the insular areas.
Multiple factors, including differences in funding allocation methods,
compliance with program requirements, and beneficiaries' use of program
services, all contribute to differences in program spending per
individual in insular areas compared to the states. For example,
Medicare spending per beneficiary in the insular areas is less than
half the amount it is in the states, due in part to differences in
methods used to pay for certain services and beneficiaries' utilization
of services. In addition, the statutory limits on federal Medicaid
funding in the insular areas--particularly the minimum federal matching
contribution and funding cap--contribute to federal Medicaid spending
per capita levels in the insular areas that are significantly lower
than in the states. However, insular areas are not required to meet all
Medicaid eligibility requirements, and in light of limits on federal
funding, CMS does not hold these areas accountable for covering all
Medicaid benefit requirements, which may help explain lower per capita
spending. For example, none of the insular areas provides full coverage
for nursing facility services, which represented nearly one-third of
Medicaid expenditures in the states in fiscal year 2003. In contrast,
HHS grant funding per capita is higher in the insular areas than in the
states due in part to allocation formulas that result in higher
payments to them as well as to states with smaller populations.
We received written comments on a draft of this report from DOI,
American Samoa, CNMI, and Puerto Rico, and technical comments from HHS
and Puerto Rico. DOI acknowledged that improving health care in the
insular areas is a priority for both the agency and the insular areas
and commented that the report identifies areas of disparity that may be
reviewed for improvement. The three insular areas expressed concern
that the report did not sufficiently address certain issues, such as
implications of statutory limits on federal Medicaid spending and a
more comprehensive analysis of local circumstances that affect the
availability and costs of health care services. Where appropriate, we
revised the report to include information about local circumstances
that may affect the provision or cost of health care services. However,
a more comprehensive analysis of insular areas' local contribution to
total health care funding or their health care infrastructures was
beyond the scope of this report.
Background:
Five insular areas--American Samoa, Guam, CNMI in the Pacific Ocean,
and the Commonwealth of Puerto Rico and the Virgin Islands in the
Caribbean Sea--represent the largest insular areas of the United
States. More than 4 million U.S. citizens and nationals live in these
insular areas under the sovereignty of the United States. These areas
vary in terms of how they came under the sovereignty of the United
States and also in terms of their demographics, such as median age and
education levels. However, all of these insular areas participate in
three major federal health care financing programs--Medicare, Medicaid,
and SCHIP--and are eligible for a variety of federal health grant
programs.
Relationship to United States:
These five areas have come under the sovereignty of the United States
in various ways. Puerto Rico and Guam were ceded to the United States
by treaty at the end of the Spanish-American War in 1898, and the
Virgin Islands were purchased from Denmark in 1917. Following the
renunciation by Great Britain and Germany of their claims to what is
now American Samoa and the cession of these islands by the Samoan
chiefs to the United States, the Congress ratified the instruments
ceding the islands to the United States in 1929. The United States was
responsible for administering the Northern Mariana Islands after World
War II under a United Nations trusteeship agreement. In 1976, a
covenant between the United States and the Northern Marianas
established the islands as a commonwealth under the sovereignty of the
United States.
Each of these areas has its own government and maintains a unique
diplomatic relationship with the United States. General federal
administrative responsibility for all insular areas but Puerto Rico is
vested in the Department of the Interior. All departments, agencies,
and officials of the executive branch treat Puerto Rico
administratively "as if it were a state;" any matters concerning the
fundamentals of the U.S.-Puerto Rican relationship are referred to the
Office of the President.[Footnote 5]
People born in Puerto Rico, Guam, CNMI, or the Virgin Islands are
American citizens; those born in American Samoa are American nationals.
The residents of all five of these larger insular areas enjoy many of
the rights enjoyed by U.S. citizens in the 50 states.[Footnote 6] But
some rights that, under the Constitution, are reserved for citizens
residing in the states, have not been extended to residents of the
insular areas. For example, residents of the insular areas cannot vote
in national elections, nor do they have voting representation in the
final approval of legislation by the full Congress.
Characteristics of the Insular Areas:
The insular areas--particularly those in the Pacific--are
geographically isolated from the United States. For example, Hawaii,
which is the closest state to the Pacific insular areas, lies 3,300 to
3,700 miles away, or up to 13 hours by air.[Footnote 7] In addition,
when compared to the U.S. states and each other, the insular areas have
unique demographic characteristics. For example, with the exception of
Puerto Rico, the populations in the insular areas are small relative to
the states, and with the exception of Guam, they are significantly
poorer. For example, four of the insular areas have median incomes that
range from about $14,000 to about $25,000, considerably lower than the
two poorest states, Mississippi and West Virginia.[Footnote 8] In
addition, the populations in the Pacific island areas--American Samoa,
CNMI, and Guam--are younger than those of the states and Puerto Rico
and the Virgin Islands. For example, nearly half of the population of
American Samoa is under the age of 19 compared to about 27 percent in
the United States. Similarly, while over 12 percent of the U.S.
population is over 65, this age cohort represents only 1.5 to 5.3
percent of the population in the three Pacific insular areas. In terms
of available health indicators, the differences are not as clear. While
the insular areas have a higher mortality rate than the U.S. for
certain diseases, such as diabetes, their mortality rates for cancer
are lower. (See fig. 1.)
Figure 1: Insular Areas and United States Demographics and Health
Indicators:
[See PDF for image]
*CDC determined that the data did not meet reliability standards
because less than 20 cases were reported.
[End of figure]
Some insular areas do not have certain types of health care providers,
and even when providers operate in these areas, their numbers per
capita are lower, on average, than in the states. For example, most of
the insular areas do not have Medicare-certified outpatient
rehabilitation facilities, community mental health centers, or
ambulatory surgical centers. In addition, none of the Pacific insular
areas has a Medicare-certified, free-standing skilled nursing facility
or a Medicare-certified hospice facility.[Footnote 9] Provider
shortages in insular areas are often particularly acute for certain
specialists.[Footnote 10] For example, although Guam has a cardiac
catheterization lab, it is not used because there is no cardiac
surgeon. Also, although its rate of diabetes death is high, American
Samoa has no resident nephrologists. Instead, the nephrologist that
serves the area is based at St. Francis Medical Center in Hawaii. When
providers are present, the average number per capita is usually lower
than in the states, although the differences between the states and
Puerto Rico are less pronounced than the differences among the states
and the other four insular areas. For example, the insular areas have
significantly fewer skilled nursing facilities than do the states. One
notable exception is that there are more end-stage renal facilities per
capita in American Samoa, Guam, and the Virgin Islands when compared to
the states, perhaps due to a higher prevalence of diabetes in these
areas. (See table 1.)
Table 1: Medicare-Certified Healthcare Providers and Hospital Beds in
Insular Areas and States, January 2005:
Providers (per 100,000): Ambulatory surgical center;
Puerto Rico: 0.6;
Average (four other insular areas): 0.3;
States: 1.5.
Providers (per 100,000): Comprehensive outpatient rehabilitation
facility;
Puerto Rico: 0.03;
Average (four other insular areas): 0;
States: 0.2.
Providers (per 100,000): Community mental health center;
Puerto Rico: 0.2;
Average (four other insular areas): 0;
States: 0.2.
Providers (per 100,000): End stage renal disease facility;
Puerto Rico: 1.0;
Average (four other insular areas): 2.1;
States: 1.6.
Providers (per 100,000): Federally qualified health center;
Puerto Rico: 0.2;
Average (four other insular areas): 0.8;
States: 1.0.
Providers (per 100,000): Home health agency;
Puerto Rico: 1.2;
Average (four other insular areas): 1.3;
States: 2.7.
Providers (per 100,000): Hospice;
Puerto Rico: 0.9;
Average (four other insular areas): 0.3;
States: 0.9.
Providers (per 100,000): Skilled nursing facility;
Puerto Rico: 0.2;
Average (four other insular areas): 0.5;
States: 5.3.
Providers (per 100,000): Hospital beds;
Puerto Rico: 321;
Average (four other insular areas): 265;
States: 416.
Source: GAO analysis of Centers for Medicare & Medicaid Services (CMS)
data.
Note: Because Puerto Rico's population represents over 90 percent of
the total population of the insular areas, we separately analyzed
provider data from Puerto Rico and the other four insular areas to
ensure that the higher prevalence of providers in Puerto Rico did not
mask the more pronounced shortages of certain providers in the other
insular areas. Provider figures for Guam, Puerto Rico, and the United
States include some Department of Veterans Affairs and Department of
Defense facilities.
[End of table]
Federal Health Care Financing and Grant Programs:
Each insular area participates in three major federal health care
financing programs--Medicare, Medicaid, and SCHIP. In addition, each
area receives health-related grant funds from a variety of HHS agencies
and four of the five areas receive health-related grant funds from DOI.
Medicare covers a variety of health care services and items for more
than 41 million beneficiaries--individuals who are 65 or older, have
end-stage renal disease (ESRD), or are disabled--including about
600,000 in the insular areas. Medicare includes separate components or
"parts" that cover different types of services. Individuals who are
eligible for Medicare automatically receive Hospital Insurance, known
as Part A, which helps pay for inpatient hospital care, skilled nursing
facility services following a hospital stay, certain home health
services, and hospice care. Beneficiaries pay no premiums for Part A
but are liable for required deductibles, coinsurance, and copayments.
Medicare Part A is funded through the Medicare trust fund, which is
financed by state and insular area employer and employee contributions.
Medicare Part B Supplemental Medical Insurance helps pay for physician,
outpatient hospital care, laboratory, and other services. Beneficiaries
who opt for Part B coverage must pay a premium--about $78 per month in
2005--and are responsible for deductibles, coinsurance, and
copayments.[Footnote 11]
Medicare's new prescription drug program, Part D, was authorized in
December 2003, and the interim phase of the program began in June 2004.
Under the interim phase, all beneficiaries in the states and the
insular areas who choose to enroll pay a fee to receive a discount drug
card, with an expected discount of 10 to 15 percent on covered
drugs.[Footnote 12] In addition, certain low-income beneficiaries in
the states are also entitled to assistance to subsidize drug costs in
2004 and 2005, and the amount of assistance available to each
individual is generally $600 per year. Under the permanent program, to
be implemented in January 2006, beneficiaries in the states and the
insular areas can choose to enroll in an optional prescription drug
coverage program subject to an estimated average monthly premium of
about $32. Like the interim program, certain low-income participants in
the states will also receive subsidies to lower their monthly premiums,
deductibles, and copayments. To help offset the costs of providing
coverage to individuals eligible for both Medicare and Medicaid, states
must pay the federal government an amount that is roughly equal to the
amount they would have paid to provide outpatient prescription drug
coverage to elderly and disabled individuals previously eligible for
prescription drug benefits under their Medicaid programs. Part D is
otherwise financed through beneficiary premiums and general revenues.
Medicaid operates as a joint federal-state program to finance health
care coverage for certain categories of low-income individuals,
including children, pregnant women, and individuals who are elderly or
disabled. Although state and insular area participation in Medicaid is
voluntary, all states and insular areas currently participate in the
program. To obtain federal matching funds, states and insular areas
generally must comply with certain minimum federal requirements related
to services and eligibility, including income and resource
requirements. Within these broad federal guidelines and under federally
approved plans, states and insular areas have great discretion in
setting eligibility standards and provider payment rates; determining
the amount, scope, and duration of covered benefits; and developing
their own administrative structures. For example, while federal law
requires Medicaid programs to offer coverage to children age 5 and
under if their family incomes are at or below 133 percent of the
federal poverty level and to children ages 6 to 18 if their family
incomes are at or below the federal poverty level, a state may decide
to increase the thresholds in order to offer coverage to more people.
As a result, Medicaid essentially operates as 56 separate programs: 1
in each of the 50 states, the District of Columbia, and each of the 5
largest insular areas. The federal share of states' Medicaid programs,
the Federal Medical Assistance Percentage (FMAP), is determined based
on state per capita income in relation to the national per capita
income, with poorer states receiving higher federal matching rates than
wealthier states. In 2005, the FMAP ranged from 50 percent in wealthier
states, such as New York and Connecticut, to about 77 percent in
Mississippi.
In 1997, the Congress enacted SCHIP to provide health care coverage to
uninsured, low-income children living in families whose incomes exceed
the eligibility limits for Medicaid.[Footnote 13] States and insular
areas have three options in designing SCHIP: expand their Medicaid
programs, develop separate child health programs that function
independently of the Medicaid programs, or do a combination of both.
States that implement SCHIP by expanding Medicaid must use their
Medicaid enrollment and benefit structure. Although SCHIP is generally
targeted to families with incomes at or below 200 percent of the
federal poverty level, each state or insular area may set its own
income eligibility limits within certain guidelines. The FMAP for SCHIP
ranges from 65 percent for the wealthiest states to about 84 percent
for the poorest states.
Various HHS agencies also distribute health care grants to the insular
areas. These grant funds--awarded by agencies such as the Centers for
Disease Control and Prevention (CDC), the Health Resources and Services
Administration (HRSA), and the Substance Abuse and Mental Health
Services Administration (SAMHSA)--may be used to support health care
services and outreach programs and are generally awarded to public
health agencies. Similarly, DOI's Office of Insular Affairs (DOI-OIA)
funds health infrastructure and provides technical assistance to all
insular areas but Puerto Rico. DOI also provides the Pacific insular
areas with funds to offset the cost of providing services to residents
of the freely associated states.[Footnote 14]
Multiple Federal Agencies Fund Health Care Services in Insular Areas:
Each of the five insular areas receives funding for health care
services from multiple federal sources. Federal health care financing
programs--Medicare, Medicaid, and SCHIP--comprised 88 percent of
aggregate federal health care funding in the insular areas in fiscal
year 2003, with Medicare representing the single largest funding source
(76 percent). The areas also received a significant amount of health
care grant funding from certain HHS agencies and DOI. However,
significant variation exists among the insular areas in terms of the
distribution of funds by source, largely due to the number of Medicare
beneficiaries residing in each area. For example, the Pacific insular
areas have relatively young populations, and therefore receive less
Medicare funding compared to other sources. From fiscal years 1999
through 2003, total federal health care funding in the insular areas
increased by 37 percent, although funding increases varied considerably
among the insular areas.
Medicare Represents the Majority of Federal Health Care Spending in
Insular Areas:
Federal health care financing programs--primarily Medicare--comprised
the vast majority of the $2.2 billion in total federal health care
spending in the five insular areas in fiscal year 2003.[Footnote 15]
Medicare funds alone, which are generally paid directly to health care
providers for services to beneficiaries rather than directly to the
insular area government, represented 76 percent--about $1.68 billion--
of the aggregate funding to the insular areas. (See fig. 2.) The
Medicaid program represented 10 percent of the total funding in the
insular areas, about $226 million, and funding for the SCHIP program
totaled about $33 million, 2 percent of total health care funding in
these areas. Unlike Medicare, Medicaid and SCHIP funds are provided
directly to the insular area governments.
Figure 2: Key Federal Health Care Funding Sources for Five Insular
Areas, Fiscal Year 2003:
[See PDF for image]
[End of figure]
In addition to the federal health care financing programs, three HHS
agencies--CDC, HRSA, and SAMHSA--provided health-related grants to
public and private entities in the insular areas. These grants
represented approximately 11 percent, more than $250 million, of total
federal health care funding in the insular areas.[Footnote 16] In 2003,
these agencies awarded grants from 87 different programs to the insular
areas, with individual awards ranging from over $9,000 to nearly $39
million. The funds may be used to support health care services and
outreach programs. For example, HRSA provided grant funding to the
insular areas for programs related to health care resources and
services, including community health centers, human immunodeficiency
virus (HIV) care and treatment, maternal and child health care, and
bioterrorism preparedness.
DOI also provided a number of health-related grants to the four insular
areas that were eligible for these funds.[Footnote 17] In fiscal year
2003, DOI grants to the insular areas totaled about $13.6 million, 1
percent of federal health care funding in the insular areas. The grants
had multiple purposes, including offsetting the costs of providing care
to individuals from the freely associated states and supporting health-
care-related activities, such as facility construction and information
technology.
From 1999 through 2003, total federal health care funding in the
insular areas increased 37 percent--from over $1.6 billion to over $2.2
billion. During this time, funding from all sources but SCHIP
increased. For example, total Medicare funding increased by 41 percent,
Medicaid by 21 percent, HHS grants by 73 percent, and DOI by 11
percent. Although funds from HHS had the largest percentage increase
over this time, the biggest increase in dollars was seen in Medicare,
with an increase of over $485 million.
Health Care Grants Represent Smaller Share of Federal Funding in Puerto
Rico Compared to Other Insular Areas:
Since Puerto Rico represents about 91 percent of total insular area
population, the aggregate spending numbers obscure the often
significant variation that exists in the sources of funding among the
insular areas. For example, similar to aggregate numbers, Medicare
spending represented 78 percent of spending in Puerto Rico in fiscal
year 2003, whereas the Medicare share in the other areas was smaller,
ranging from 29 percent in American Samoa to 63 percent in the Virgin
Islands. (See fig. 3.) This variation is influenced by differences in
the share of Medicare beneficiaries residing in each area relative to
its overall population. For example, Medicare as a share of total
spending was largest in both Puerto Rico and the Virgin Islands, whose
populations of individuals 65 or older are comparatively larger than
that of the Pacific insular areas and are more closely aligned with the
U.S. average. Differences in the other federal health financing
programs also varied, but to a lesser extent, with Medicaid and SCHIP
funding combined representing between 12 and 21 percent of health care
funding in each of the areas.
Figure 3: Key Federal Health Care Funding Sources by Insular Area,
Fiscal Year 2003:
[See PDF for image]
Note: Figures may not total to 100 percent due to rounding.
[End of figure]
In terms of health care grants from both HHS and DOI, significant
variation existed in the share of health care funding they represented
among the insular areas. For example, in fiscal year 2003, these grants
represented 11 percent of total health care funding in Puerto Rico;
however, they represented 25 to 56 percent of total funding in the
other insular areas. Variation among the insular areas in terms of DOI
health grants as a share of total federal funding was more pronounced
than that of HHS grants during this time. While HHS grants represented
roughly the same share of total health care funding in each insular
area except Puerto Rico, DOI grants represented 2 percent of total
health care funding in CNMI, 7 percent in Guam, and 37 percent in
American Samoa. The Virgin Islands, although eligible for these funds,
received none in fiscal year 2003.
The availability of grant funds, and therefore the share they
represented of health care funding, has fluctuated considerably in
recent years. For example, DOI grants to CNMI, which represented 2
percent of total health care funds in 1999, increased to 26 percent of
total funding in 2001 and fell back to 2 percent in 2003.[Footnote 18]
Similarly, HHS grants to the Virgin Islands represented 13 percent of
total federal health funding in 1999, but grew to nearly one-third of
total spending in 2002. (See app. II for a detailed description of
trends in federal funding sources over time for each insular area.)
Such year-to-year variability can make it difficult to establish long-
range budgets and to develop, manage, and staff programs funded by
grant awards. In addition, according to insular area officials,
capturing and retaining HHS grant funds can be labor intensive. For
example, for most of the grants we reviewed, agencies require insular
areas and states to complete comprehensive applications with detailed
budgets and program plans. Agencies may also require periodic data
reporting or local cost sharing.
When considered individually, each of the five insular areas
experienced an overall increase in total federal health care funding
from 1999 through 2003. Increases, however, varied considerably among
the areas, ranging from 36 percent in Puerto Rico to 81 percent in
CNMI.[Footnote 19] The variation was largely due to differences in the
annual increases specific to Medicare and HHS grant awards. For
example, Medicare funding increased in all areas, but most dramatically
in CNMI, largely due to changes in the way its hospital reported costs
to CMS. Similarly, total HHS grant funding increased in each area,
although increases were more pronounced in certain areas, such as
American Samoa and Guam, due in part to the introduction of new grants
related to bioterrorism.
Notable Differences Exist in Methods Used to Allocate Federal Health
Care Funds in the Insular Areas Compared to the States:
The methods used to allocate federal health care funds in the insular
areas differ, in some cases, from those used in the states. Although
Medicare payment policy does not differ for certain providers, such as
physicians, notable differences exist in the policies used to pay
hospitals and for the new Part D prescription drug benefit. Similarly,
differences exist in how the Medicaid and SCHIP programs are funded in
the insular areas. Unlike in the states, the federal share of Medicaid
and SCHIP expenditures in the insular areas--the FMAP--is limited by
statute, and federal Medicaid funding is capped. In addition,
allocation methods used for certain HHS grants establish separate rules
for the insular areas.
Medicare Funds Are Allocated Differently for Parts A and D:
The Medicare program operates similarly in the insular areas and the
states in terms of eligibility for the program and beneficiaries'
entitlement to benefits. For example, like their counterparts in the
states, insular area residents who are eligible for Medicare are
automatically enrolled in Part A and do not pay premiums for this
coverage. Likewise, the policies used to determine payment for
physicians under Part B are essentially the same. However, significant
differences exist between the insular areas and the states regarding
the methods used to determine payments to hospitals and the funding of
the Medicare Part D benefit.
Unlike the states and Puerto Rico, where hospitals are paid under
Medicare's PPS, hospitals in the other insular areas are paid based on
their costs.[Footnote 20] There are differences in the cost-based
payment methods used in these areas. The hospitals in Guam and the
Virgin Islands are paid using the methodology established under the Tax
Equity and Fiscal Responsibility Act of 1982 (TEFRA) for classes of
hospitals not included in the PPS. Payments to these hospitals are the
lesser of their average cost per discharge or a specific target
amount.[Footnote 21] Hospitals in American Samoa and CNMI are also paid
based on their costs; however, they are not subject to target amounts
or a national cap.[Footnote 22] We did not evaluate how payments under
these cost-based methods compare to PPS payments to hospitals in the
states.
Although hospitals in Puerto Rico are paid under the PPS system, the
formula that CMS uses to reimburse hospitals in Puerto Rico is distinct
from that used for hospitals in the states. Each of the Puerto Rico PPS
payment rates is a "blended rate," which is comprised of 75 percent of
a national rate used for hospitals in the states and 25 percent of a
local rate, which is lower than the national rate. The rates are
further adjusted for each hospital using national and local cost
factors. These adjustments account for the lower costs of providing
hospital services in Puerto Rico compared to the states and for
differing costs among hospitals within Puerto Rico.
Differences also exist between the insular areas and the states
regarding the methods used to fund Medicare's new Part D prescription
drug benefit for low-income beneficiaries. For example, during the
interim phase of the Part D program, certain low-income beneficiaries
in the states who participate in the program are entitled to assistance
to subsidize drug costs in 2004 and 2005, and the amount of assistance
available to each individual is generally $600 per year. In contrast,
low-income Medicare beneficiaries in the insular areas do not receive
this direct subsidy. Instead, CMS provided each insular area with an
allotment, which the insular areas typically used to subsidize
prescription drug coverage to certain low-income Medicare
beneficiaries.[Footnote 23] Similarly, although the permanent Part D
program, scheduled to begin in January 2006, allows for identical
coverage for most beneficiaries in the insular areas and states,
however, low-income beneficiaries in the insular areas will not receive
direct benefits to help subsidize their premiums, deductibles, and
copayments available to Medicare and Medicaid dual eligible
beneficiaries in the states. Instead, CMS will again provide each of
the insular areas an allotment, which they will use to administer the
program to low-income beneficiaries based on a locally-developed plan.
The extent to which the benefits in the insular areas will mirror the
federal program is not clear as none of the insular areas has finalized
its plan for the administration of this program.
Medicaid and SCHIP Federal Funding to the Insular Areas Is Limited by
Statute:
Like the states, each of the insular areas receives federal funding
from the Medicaid and SCHIP programs. However, how federal funds for
these programs are allocated to the insular areas differs, often
significantly, from the states, and these differences are statutory in
nature. For example, recognizing that states vary in their capacity to
pay for Medicaid expenses, the statutory formula used to calculate the
federal share of each state's expenditures--the FMAP--is based on a
state's per capita income in relation to the national average per
capita income. The FMAP ranges from 50 to no more than 83 percent of
Medicaid expenditures, with poorer states receiving a higher federal
matching rate than wealthier states.[Footnote 24] In contrast, the FMAP
for the insular areas does not recognize their capacity to pay for
Medicaid expenses; instead, the FMAP is set at the lowest rate--50
percent--although all of the insular areas, except Guam, had a lower
median household income than the poorest U.S. state.
In addition, federal Medicaid funding in states is not limited,
provided the states contribute their share of program expenditures for
services provided. In contrast, federal Medicaid funding in each
insular area is subject to a statutory cap, which is increased annually
by the percentage increase in the medical care component of the
Consumer Price Index for all urban consumers, which averaged about 4
percent per year from 1999 through 2003.[Footnote 25] All five of the
insular areas typically exhaust the Medicaid cap prior to the end of
the fiscal year, and once the cap is exhausted, the insular areas
assume the full costs of Medicaid.[Footnote 26] Due to insufficient
local funds, once the Medicaid cap is met, some insular areas may
suspend services or cease payments to providers until the next fiscal
year.[Footnote 27]
Federal statute and the Medicaid cap also affect the ability of insular
areas to access certain sources of Medicaid funding. For example,
insular areas are not included in the federal legislation that
established the Medicaid disproportionate share hospital (DSH) program,
which provides supplementary payments to hospitals that serve a large
number of Medicaid and low-income uninsured patients.[Footnote 28] DSH
is a key source of Medicaid funding for "safety net" hospitals in the
states and totaled about 5 percent of all federal Medicaid funding to
the states in fiscal year 2003. In addition, although states and the
insular areas are eligible for other sources of Medicaid federal
matching funds, CMS officials said the federal cap prevents the insular
areas from accessing these funds. For example, none of the insular
areas accessed available funding for the development of immunization
registries or for the update of data systems to comply with provisions
of the Health Insurance Portability and Accountability Act of 1996
(HIPAA) because funds spent on these programs would count against the
cap and thereby divert funds from the direct provision of care. For
this same reason, none of the insular areas participates in the
optional Breast and Cervical Cancer Prevention and Treatment program,
which allows for expanded eligibility and an enhanced Medicaid match
rate for treatment provided to women diagnosed with these cancers. All
50 states and the District of Columbia have opted to cover women under
this program.
Whereas fundamental differences exist between insular areas and the
states in terms of the allocation of federal Medicaid funds, the
differences that exist in the funding of their SCHIP programs are less
pronounced. For example, unlike Medicaid, where federal funding to the
states is open-ended, annual SCHIP allotments to both the states and
the insular areas are set in statute and function like a cap. The
statute specified a total annual allotment for the states and insular
areas for fiscal years 1998 through 2007, with the insular areas
receiving 0.25 percent of the annual nationwide SCHIP allotment, which
is divided among them based on statutorily set proportions.[Footnote
29] The remainder of the allotment is allocated to states based on the
population of low-income uninsured children. The Congress awarded
additional funds to insular areas for fiscal years 1999 through 2007
which, when combined with the original allotment, increased their
portion of total SCHIP funding.[Footnote 30]
Although SCHIP funding is limited for both states and insular areas,
the FMAP for SCHIP, similar to Medicaid, does not consider the capacity
of insular areas to pay for services. The statute provides for an
"enhanced" FMAP, which is equal to each state and insular area's
Medicaid matching rate plus 30 percent of the difference between the
Medicaid match and 100 percent, not to exceed a federal share of 85
percent. Thus, like states that receive the minimum 50 percent Medicaid
match, the insular areas receive the minimum 65 percent match available
under SCHIP.
Certain HHS Grants Are Allocated Differently:
Each HHS grant has a distinct funding allocation method, and although
certain grants use identical allocation methods for the states and the
insular areas, others treat some or all of the insular areas
differently. For example, the method used to calculate HRSA's
Consolidated Health Center grants, which are competitive awards made to
individual qualifying health centers based upon proposed budgets and
their capacity to compete for funds, is the same in the states as in
the insular areas. In contrast, different allocation rates are used to
determine funding levels for some insular areas under HRSA's Ryan White
Title II HIV Care Formula grants to States and CDC's Public Health
Preparedness and Response for Bioterrorism grant. The allocation
formulas for these grants have two components--a base component, which
is a set dollar amount, and a variable component, which is based on
population or other factors. For example, funding levels for the Ryan
White Title II grant are based largely on the prevalence of AIDS in
individual states as well as in Puerto Rico and the Virgin Islands. In
contrast, funding of this grant for the Pacific insular areas does not
consider the prevalence of AIDS; instead, these insular areas receive a
lower, standard base rate.[Footnote 31] Similarly, when compared to the
states, the base and variable components for the CDC's Public Health
Preparedness and Response to Bioterrorism grant is smaller for each of
the insular areas except Puerto Rico. (See table 2.)
Table 2: Formula Components for CDC's Public Health Preparedness and
Response for Bioterrorism Grant:
Grant program: Public Health Preparedness and Response for
Bioterrorism:
Recipients: All states and Puerto Rico;
Base component: $3.915 million;
Variable component (dollars per person): $2.03.
Recipients: Washington, D.C;
Base component: $10 million;
Variable component (dollars per person): $2.03.
Recipients: Chicago, Los Angeles County, and New York City;
Base component: $5 million;
Variable component (dollars per person): $2.03.
Recipients: American Samoa, CNMI, Guam, the Virgin Islands, and the
freely associated states;
Base component: $391,500;
Variable component (dollars per person): $0.79.
Source: CDC.
[End of table]
CDC's Immunization and Vaccines for Children grant provides another
example of where the method used to allocate funds differs in the
insular areas compared to the states. In this case, grant amounts to
the states are based on certain rules that consider characteristics of
the population as well as funding history. In contrast, these rules are
not used to determine the grant amounts for insular areas. Instead, the
award amounts to insular areas are determined at the discretion of the
agency's project officer.[Footnote 32]
Multiple Factors Explain Differences in Individual Spending Levels in
Insular Areas Compared to the States:
Although most of the key sources of health care funding available in
the insular areas are also available in the states, individual spending
levels are often lower in the insular areas. For example, Medicare
spending per beneficiary is significantly lower in the insular areas,
due in part to differences in methods used to pay for certain services
and in beneficiaries' utilization of services. In addition, statutory
limits on Medicaid funding in the insular areas contribute to lower per
capita spending. In light of these statutory limits, CMS does not hold
insular areas accountable for providing all the mandatory Medicaid
services, including nursing home care, which makes up nearly a third of
Medicaid expenditures in the states. In contrast, HHS grant funding per
capita is higher in the insular areas than in the states, due, in part,
to allocation formulas that result in higher payments to them as well
as to states with smaller populations.
Lower Medicare Spending Per Beneficiary Explained by Payment Policy
Differences and Lower Utilization:
As in the insular areas, Medicare comprised the majority--over 60
percent--of federal health care funding in the states in fiscal year
2003 and, with limited exceptions, the program operates largely the
same in the insular areas as in the states. However, Medicare spending
per beneficiary in the insular areas in fiscal year 2003 was less than
half of Medicare spending in the states--about $2,800 on average in the
insular areas compared to $6,800 in the states.[Footnote 33] (See fig.
4.)
Figure 4: Medicare Spending Per Beneficiary in Five Insular Areas
Compared to the States, Fiscal Year 2003:
[See PDF for image]
[End of figure]
Differences in payment policy help explain some of the disparity in
Medicare per beneficiary spending in the insular areas compared to the
states. For example, the PPS methodology used to determine payments to
hospitals in Puerto Rico, which includes a lower local component,
contributes to lower payments. Similarly, the method used to determine
supplemental PPS payments for Medicare's DSH program results in lower
payments to hospitals in Puerto Rico compared to the states.[Footnote
34] To qualify for Medicare DSH payments, at least 15 percent of a
hospital's patient days must be attributable to certain patients
receiving either Supplemental Security Income (SSI) or Medicaid
benefits (which combined serve as a measure of the number of low-income
patients treated by any single hospital). Further, the actual DSH
payment is based on the number of patient days attributable to these
low-income patients. Because residents of Puerto Rico are statutorily
ineligible for SSI payments regardless of whether or not they meet the
income thresholds required for SSI eligibility, only SSI patients
visiting from the states are included in the counts for DSH. We were
informed that, as a result, it is more difficult for hospitals in
Puerto Rico to meet the 15 percent threshold, and those hospitals
meeting the threshold receive limited DSH payments because the low-
income counts do not include some poor patients.
Whether cost-based methods used to pay hospitals in the other insular
areas similarly contribute to lower per beneficiary payments relative
to the states is less clear. However, some of the variation in spending
per beneficiary among the insular areas is likely due to the fact that
statutory limits on Medicare payments apply to hospitals in some, but
not all, insular areas. For example, hospital payments in CNMI are
based on what the hospital claims as its actual costs. These costs are
not limited, are not audited, and have increased dramatically in recent
years. In contrast, under TEFRA, payments to hospitals in the Virgin
Islands are limited, and according to officials with the Medicare
fiscal intermediary serving the Virgin Islands, these payments may not
be covering costs.[Footnote 35] The different methods used to pay these
hospitals likely explain, in part, why Medicare payments per
beneficiary in CNMI are significantly higher than in the Virgin
Islands.
Another factor that helps explain lower Medicare per beneficiary
spending in the insular areas is the extent to which Medicare
beneficiaries in the insular areas use certain covered services. For
example, an analysis of Medicare utilization rates for major medical
procedures[Footnote 36] shows that, on average, beneficiaries in the
insular areas received far fewer of these services than beneficiaries
in the states--rates in the insular areas ranged from 144 to 203 per
thousand beneficiaries compared to 297 per thousand in the states.
Rates were similarly low in Hawaii (172 per thousand), but not in other
remote or poor states studied. (See fig. 5).
Figure 5: Number of Medicare Part B Major Medical Procedures Per 1,000
Beneficiaries in Selected States and Insular Areas, Calendar Year 2003:
[See PDF for image]
Notes: Utilization rates in CNMI may be understated due to hospital
billing practices. According to CNMI officials, physicians in CNMI do
not separately bill Medicare for services they provide in the hospital.
Instead, the hospital captures these costs in its hospital cost report.
States included in the analysis were selected based on their geographic
remoteness or their lower income levels relative to the U.S. average.
[End of figure]
Several factors likely contribute to lower Medicare utilization, and
therefore per beneficiary spending, in the insular areas. For example,
limited access to certain specialty services, a lack of Medicare-
certified physicians, and local cultural differences may contribute to
lower Medicare utilization rates. A CMS official serving the Pacific
insular areas reported that certain specialty services, such as
chemotherapy, are not available in these areas, and it is often too
expensive for beneficiaries to travel to receive such services off
island. Lower utilization rates of physician services in American Samoa
could also be attributable, in part, to a lack of Medicare-certified
providers. According to a CMS official, many medical professionals in
American Samoa who provide services to residents are not certified to
receive payments under Medicare.[Footnote 37] Cultural differences may
also contribute to lower utilization of Medicare services in the
insular areas. For example, a CMS official said that some American
Samoans are less likely to seek care in Medicare-certified facilities.
Similarly, reliance on nursing facilities may be less prevalent in
certain insular areas, as families assume primary care responsibility
for individuals who might commonly receive care in these facilities in
the states.
Another factor contributing to lower per beneficiary spending is that
the percentage of Medicare beneficiaries enrolled in Part B is
significantly lower in most of the insular areas than in the states. On
average, in 2003 about 77 percent of Medicare beneficiaries in the
insular areas opted for Part B, compared to 95 percent in the
states.[Footnote 38] Insular area officials provided a number of
reasons to explain the enrollment differences. For example, Medicare
beneficiaries in the states and all insular areas but Puerto Rico are
automatically enrolled in Part B, typically around their 65th
birthday.[Footnote 39] However, some insular area officials told us
that their residents opt out of Part B coverage because they cannot
afford its monthly premium, which was about $78 in 2005.[Footnote
40],[Footnote 41] Also, beneficiaries in Puerto Rico must go to a local
Social Security office to enroll in Part B,[Footnote 42] and according
to CMS officials, this policy leads to lower enrollment. Similarly,
American Samoa officials said that some of their Medicare beneficiaries
may lack the incentive to purchase Part B coverage as they have access
to free health coverage through the local hospital.[Footnote 43]
Medicaid and SCHIP Individual Spending Levels in Insular Areas are
Lower; Minimum Program Requirements Are Not Strictly Enforced:
Federal Medicaid spending per capita was also lower in the insular
areas compared to the states. In fiscal year 2003, federal Medicaid per
capita spending in the states averaged $565 compared to between $33 and
$65 for the insular areas. Poorer states with higher federal matching
rates received as much as $813 in federal Medicaid per capita spending-
-more than 12 times the amount received by any insular area.[Footnote
44] (See fig. 6.)
Figure 6: Federal Medicaid Per Capita Funding in Selected States and
Insular Areas, Fiscal Year 2003:
[See PDF for image]
Note: States included in the analysis were selected based on their
geographic remoteness or their lower income levels relative to the U.S.
average.
[End of figure]
The statutory limits on federal Medicaid funding in the insular areas-
-particularly the minimum federal matching contribution and payment
cap--clearly contribute to lower federal per capita spending. However,
insular areas are not required to meet all Medicaid eligibility
requirements, and in light of the statutory limits on federal funding,
CMS does not hold these areas accountable for covering all Medicaid
benefit requirements.[Footnote 45] For example, Puerto Rico and the
Virgin Islands have implemented eligibility criteria that are more
restrictive than the federal standards, which have resulted in lower
Medicaid enrollment than would otherwise be the case.[Footnote 46] In
contrast, American Samoa, whose median household income is less than
half that of the United States, neither uses specific categories to
determine eligibility nor links eligibility to income levels that
reflect local conditions. Instead, it considers every resident with an
income at or below the federal poverty level--the majority of the
population--as eligible for Medicaid. The different eligibility
determination methods affect Medicaid enrollment in each insular area.
While nationwide about 14 percent of the population is enrolled in
Medicaid, Medicaid enrollment in the insular areas ranges from 12
percent in CNMI to 65 percent in American Samoa. (See app. III for a
summary of the characteristics of insular areas' Medicaid programs.)
Another notable difference between states and the insular areas is the
range of services covered by their respective Medicaid programs, and
disparities in federal per capita spending should be considered in the
context of these differences. For example, once states choose to
participate in Medicaid, they are required to cover certain mandatory
services, such as inpatient and outpatient hospital care; physician
services; nursing facility care; and early and periodic screening,
diagnostic, and treatment (EPSDT) services for children. With limited
exceptions, all of the states cover each of the mandatory
services.[Footnote 47] In contrast, none of the insular areas cover all
mandatory services. For example, none of the insular areas provides
full coverage for nursing facility services, which represented 32
percent of Medicaid expenditures in the states in fiscal year
2003.[Footnote 48] CMS is aware that the insular areas do not provide
all mandatory Medicaid services. However, according to a CMS official,
the agency does not have any guidance as to how it should ensure
compliance with the federal Medicaid standards regarding mandatory
services, especially in light of limits on federal funding in the
insular areas. Over time, CMS has allowed the insular areas to
determine which Medicaid services they provide to maximize their use of
federal health care funds.[Footnote 49] (See table 3.)
Table 3: Mandatory Medicaid Services Covered by Insular Areas and
States, Fiscal Year 2005:
Service: Inpatient hospital services;
AS: service covered;
CNMI: service covered;
GU: service covered;
PR: service covered;
VI[A]: service covered;
Number of states: 51.
Service: Outpatient hospital services;
AS: service covered;
CNMI: service covered;
GU: service covered;
PR: service covered;
VI[A]: service covered;
Number of states: 51.
Service: Physician's services;
AS: service covered;
CNMI: service covered;
GU: service covered;
PR: service covered;
VI[A]: service covered;
Number of states: 51.
Service: Laboratory and x-ray services;
AS: service covered;
CNMI: service covered;
GU: service covered;
PR: service covered;
VI[A]: service covered[B];
Number of states: 51.
Service: Early and periodic screening, diagnostic, and treatment
(EPSDT) services for individuals under 21;
AS: service covered;
CNMI: service covered;
GU: service covered;
PR: service covered;
VI[A]: service covered;
Number of states: 51.
Service: Family planning services and supplies;
AS: service covered;
CNMI: service covered;
GU: service covered;
PR: service covered;
VI[A]: service covered;
Number of states: 51.
Service: Transportation services;
AS: service covered;
CNMI: service covered;
GU: service not covered;
PR: service covered with limitations[C];
VI[A]: service covered with limitations[D];
Number of states: 51.
Service: Certified nurse practitioner services;
AS: service covered;
CNMI: service not covered[E];
GU: service covered;
PR: service not covered;
VI[A]: service covered with limitations[F];
Number of states: 50[G].
Service: Home health services;
AS: service covered with limitations[H];
CNMI: service covered;
GU: service not covered;
PR: service not covered;
VI[A]: service covered;
Number of states: 51.
Service: Federally-qualified health center (FQHC) services;
AS: service not covered;
CNMI: service not covered;
GU: service not covered;
PR: service covered;
VI[A]: service covered;
Number of states: 51.
Service: Nursing facility (NF) services for individuals 21 or over;
AS: service not covered;
CNMI: service not covered[E];
GU: service covered with limitations[I];
PR: service not covered;
VI[A]: service covered with limitations[J];
Number of states: 51.
Service: Nurse midwife services;
AS: service covered;
CNMI: service not covered[E];
GU: service not covered;
PR: service not covered;
VI[A]: service not covered;
Number of states: 50[K].
Service: Rural health clinic (RHC) services;
AS: service not covered;
CNMI: service not covered;
GU: service not covered;
PR: service not covered;
VI[A]: service not covered;
Number of states: 48[L].
Sources: Insular area officials and The Kaiser Commission.
Notes: Number of states includes Washington, D.C.
The Kaiser Commission on Medicaid and the Uninsured. Medicaid Benefits:
Online Database (The Henry J. Kaiser Family Foundation).
http://www.kff.org/medicaid/benefits/index.jsp (downloaded Aug. 22,
2005).
[A] All services in the Virgin Islands must be provided in health
department facilities (including FQHCs and referral facilities located
off-island) that are pre-approved by the Medicaid program.
[B] Laboratory and x-ray services require prior approval.
[C] Ambulance services are covered when appropriate. Off-island
transportation is not covered.
[D] No transportation services are covered on-island; transportation
off-island must be pre-approved.
[E] Service not provided because of a lack of qualified local
providers. However, these services are covered off-island when the
patient is referred off-island to receive them.
[F] Certified nurse practitioner services are not covered as a separate
entity, but are covered if they are provided in a Medicaid-certified
facility or program.
[G] California does not cover nurse practitioner services.
[H] Long-term or transitional care provided on a case-by-case basis in
hospital wards.
[I] Nursing facility care is available to Medicaid enrollees in a non-
Medicaid certified facility. This coverage is a supplement to the
Medicaid program and is paid for by Guam's Medically Indigent Program.
[J] The Virgin Islands has one nursing facility with 80 beds, 20 of
which are Medicaid certified. No other nursing facility services are
available.
[K] Illinois does not cover nurse midwife services.
[L] Connecticut, D.C., and New Jersey do not cover rural health clinic
services.
[End of table]
Mandatory services may not be provided in an insular area because
qualified providers or facilities do not exist.[Footnote 50] For
example, none of the Pacific insular areas have a Medicaid-certified,
free-standing skilled nursing facility. In other cases, insular areas
may not cover certain services although qualified providers are
available. For example, Medicaid-qualified providers are available in
Puerto Rico for nursing facility, home health, nurse midwife, and
certified nurse practitioner services; however, because of the
limitations of the Medicaid cap, the Medicaid program does not include
them in its benefit package, according to a Puerto Rico Medicaid
official. Similarly, an official associated with the Virgin Islands'
Medicaid program said that although qualified providers are available,
nurse midwife and nurse practitioner services are not covered due to
their costs. However, the Medicaid programs of some insular areas incur
additional costs that states may not. For example, several insular
areas pay the costs associated with transporting enrollees off-island
to receive services not available locally. The costs associated with
transportation are typically high, particularly for the Pacific insular
areas, and count against the Medicaid cap.[Footnote 51] In addition,
each insular area has chosen to add benefits, such as coverage for
outpatient prescription drugs, which are optional under the statute.
(See app. III for a summary of these optional benefits.)[Footnote 52]
Federal SCHIP individual spending levels were also lower in the insular
areas compared to the states. In fiscal year 2003, federal SCHIP
spending per child under age 19 averaged $24 in the insular areas
(ranging from $14 in American Samoa to about $25 in Puerto Rico)
compared to an average of $41 in the states. When compared to the
states, the insular areas are poorer and have a higher proportion of
children under 19 years of age. Therefore, the statutory SCHIP
allotment, which distributes funds to the insular areas based on their
proportion of total insular population versus number of uninsured
children, contributes to this disparity. However, as is the case with
the Medicaid program, the operation of the SCHIP program in most of the
insular areas is fundamentally different than the states. For example,
while nearly 6 million children were served through SCHIP state
programs in fiscal year 2003,[Footnote 53] most of the insular areas do
not have a unique SCHIP program that extends health insurance coverage
to additional children. Instead, the insular areas primarily use SCHIP
funds to continue to pay for services provided to children enrolled in
the Medicaid program once the Medicaid cap is met. One exception is
Puerto Rico, which uses SCHIP funding to extend Medicaid coverage to
children with family incomes between 100 and 200 percent of its local
poverty level.[Footnote 54]
HHS Per Capita Grant Spending Is Higher in Insular Areas:
In fiscal year 2003, total HHS per capita spending on health-related
grants from three agencies--CDC, HRSA, and SAMHSA--was higher in the
insular areas compared to the states. On average, these three agencies
awarded about $60 per capita in the insular areas compared to about $48
per capita in the states. Differences in per capita spending are due in
part to the methods used to allocate grant funds. For example, the base
rate formula used to calculate the CDC bioterrorism grant results in
higher payments to all insular areas except Puerto Rico and to states
with smaller populations. In the four smaller insular areas, awards per
capita for this grant range from $5.20 in Guam to $11.37 in American
Samoa, and in states with small populations, such as Alaska and
Wyoming, awards were $10.62 and $12.06 respectively compared to $3.61
in the states on average. (See fig 7.)
Figure 7: Per Capita Funding to Insular Areas and Selected States for
CDC's Bioterrorism Grant, Fiscal Year 2003:
[See PDF for image]
[End of figure]
Agency Comments and Our Evaluation:
We provided a draft of this report for comment to HHS, DOI, and key
health officials in each of the five insular areas. We received written
comments from DOI, American Samoa, CNMI, and Puerto Rico, which are
included in appendixes IV, V, VI and VII, respectively. Although HHS
provided no general comments, it did provide technical comments, as did
Puerto Rico, which we incorporated as appropriate.
DOI noted that improving health care in the insular areas is a priority
for both the agency and the insular areas and commented that the report
will help identify areas of disparity which may be reviewed for
improvement. The insular areas expressed concern that the report did
not sufficiently address certain issues, such as implications of
statutory limits on federal Medicaid spending and a more comprehensive
analysis of local circumstances that affect the availability and costs
of health care services. The insular areas also provided a number of
specific comments and suggestions.
Specifically, CNMI and Puerto Rico commented that the statutory limits
on federal Medicaid spending--the Medicaid cap and minimum FMAP--result
in insufficient federal Medicaid payments to the insular areas and
explain the significant differences in federal Medicaid payments
between them and the states. For example, CNMI noted that one patient
with an expensive medical condition, such as a baby with congenital
heart disease or a child with leukemia, can consume a large portion of
the available federal Medicaid contribution in a given year. CNMI also
commented that the federal funding limits prevent its Medicaid program
from providing all Medicaid mandatory services and suggested that the
report implied that this was a "satisfactory state of affairs" because
the federal government does not penalize insular areas for not
providing these services. We did not intend to imply that this is a
satisfactory condition; rather, our purpose was to describe mandatory
Medicaid services that are not provided by insular areas and to explain
that, in light of the limits on federal funding, CMS does not hold
these areas accountable for providing these services. We revised the
report to clarify this point.
The three insular areas commented that the report did not adequately
explore other implications of the statutory federal funding limits,
including the impact on the local contribution to total health care
costs and the local health care infrastructure. For example, Puerto
Rico commented that as a result of the limits on federal Medicaid
payments, it and other insular areas shoulder a larger share of
financial responsibility for the Medicaid program than the states, and
that the federal contribution to the program is far less than the
minimum FMAP suggests. Similarly, CNMI commented that the report failed
to discuss the effect of limited federal funding on health outcomes,
physician recruitment and retention, and other necessary government
services. American Samoa commented that the report minimized or omitted
local circumstances that affect the costs of health care services and
are major factors in the analysis of federal funding. For example, a
local statute requires the American Samoan government to provide
medical services to qualified citizens at no cost, and its only
hospital, which the government owns and operates, is the sole provider
of primary, secondary, and tertiary care. In combination, these factors
have deterred the development of privately-owned health care facilities
and providers, which can not compete with government-level charges, and
this has limited the availability of services. Where appropriate, we
revised the report to include information about these local
circumstances and their effect on American Samoa's ability to provide
health care services. A more comprehensive analysis of insular areas'
local contribution to total health care funding or their health care
infrastructures, however, was beyond the scope of this report.
The insular areas also provided a number of specific comments or
suggestions. For example, CNMI commented that the report implied that
the availability of certain grant funds, including those provided to
offset the cost of providing services to residents of the freely
associated states, ameliorated the adverse effects of disparities in
federal funding for the Medicare and Medicaid programs and added that
grant funds are not enough to replace inadequate Medicaid funding. It
was not our intent to imply that these grants are a substitute for
other sources of federal health care funding. Rather, the report
identifies major sources of federal health care funding in insular
areas, of which grants are a significant portion. Puerto Rico also
suggested that the report include a more thorough and substantive
review of several issues it considers to be programmatic barriers to a
balanced partnership between insular areas and the federal government,
including the Medicaid cap, SCHIP allotment methods, and the level of
the Medicare Part D low-income subsidy for insular areas. Such an
analysis was beyond the scope of this report.
Finally, CNMI commented the report should include recommendations to
address what it characterizes as "the outright discrimination in
federal health care funding" for the insular areas and suggested that
specific recommendations could include eliminating the Medicaid cap,
calculating the FMAP based on actual poverty rates, and providing
additional Medicare Part D pharmacy benefits. We acknowledge CNMI's
views on the adequacy of current levels of federal health care funding.
However, we did not include recommendations in this report because it
is the Congress's prerogative to set the overall design of the Medicaid
program. Puerto Rico commented that this report describes many of the
challenges and the imbalance affecting the federal and insular area
health care partnership, such as the Medicaid cap, and provides the
foundation for the Congress to address these issues.
As arranged with your offices, unless you publicly announce the
contents of this report earlier, we plan no further distribution of it
until 30 days after its issuance date. At that time, we will send
copies of this report to the Secretary of Health and Human Services,
the Secretary of the Interior, and insular area governments. In
addition, the report is available at no charge on GAO Web site at
http://www.gao.gov.
If you or your staff have any questions about this report, please
contact me at (202) 512-7118 or allenk@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. GAO staff who made major contributions to
this report are listed in appendix VIII.
Signed by:
Kathryn G. Allen:
Director, Health Care:
List of Requesters:
The Honorable Dan Burton:
Chairman:
Subcommittee on the Western Hemisphere:
Committee on International Relations:
House of Representatives:
The Honorable Neil Abercrombie:
The Honorable Madeleine Z. Bordallo:
The Honorable Ed Case:
The Honorable Donna Christensen:
The Honorable Eni F.H. Faleomavaega:
The Honorable Raúl Grijalva:
The Honorable Michael M. Honda:
The Honorable Robert Menendez:
House of Representatives:
[End of section]
Appendix I: Scope and Methodology:
To compare characteristics of the five largest insular areas--American
Samoa, the Commonwealth of the Northern Mariana Islands (CNMI), Guam,
Puerto Rico, and the Virgin Islands--we used demographic data from the
Census Bureau and disease mortality data from the Centers for Disease
Control and Prevention (CDC). Except for Puerto Rico, interim and
supplemental censuses to the decennial census are not performed for the
insular areas. Therefore, 2000 census data for all insular areas and
states were used for consistency. Reliable data for the incidence of
disease are not collected for all insular areas. CDC's 2002 natality
and mortality report provided health indicator data except where the
number of cases was too few to provide reliable estimates.
To identify key federal sources of health care funding to the insular
areas we reviewed the Census Bureau's Consolidated Federal Funds Report
and conducted interviews with representatives from insular areas, six
agencies of the Department of Health and Human Services (HHS),[Footnote
55] the Department of the Interior's Office of Insular Affairs (DOI-
OIA), and the White House Office of Intergovernmental Affairs. We
defined health care funding as federal funds provided to support
directly delivered health care, health data collection, disease
prevention, and other health-related activities. On the basis of the
discussions, we focused our work on the following key sources of
funding: Medicare, Medicaid, and SCHIP, in addition to grants from
three HHS agencies--CDC, the Health Resources and Services
Administration (HRSA), and the Substance Abuse and Mental Health
Services Administration (SAMHSA)--and DOI.[Footnote 56]
We collected federal health expenditure data for the states and the
insular areas. We selected five states for comparison to insular areas-
-Alaska, Hawaii, Mississippi, West Virginia, and Wyoming. States were
selected on the basis of one or more criteria: geographic remoteness,
low Medicare spending, and high federal Medicaid matching rate.
We analyzed data provided by each agency and by the insular areas to
identify the composition of federal health care funding to insular
areas and growth in the awards from fiscal year 1999 through 2003. We
compared insular area data with funding to the states as a whole, and
to select individual states. We also analyzed expenditures per capita
or by beneficiaries of respective programs, where available and
consistent.[Footnote 57]
Medicare:
To calculate Medicare expenditures for beneficiaries residing in the
insular areas, we used Medicare's 1999-2003 claims data.[Footnote 58]
We supplemented the results with figures for inpatient and Part C
expenditures calculated by the Centers for Medicare & Medicaid Services
(CMS).[Footnote 59] Expenditures for the U.S. for fiscal year 2003 were
obtained from CMS.[Footnote 60] Beneficiary figures for the insular
areas and the U.S. were calculated using CMS's Denominator File, which
contains enrollment data for Medicare beneficiaries.[Footnote 61] We
used the Denominator File and CMS's National Claims History File for
Physician and Supplier Claims Data to calculate Medicare Part B
utilization by beneficiaries in the insular areas and select
states.[Footnote 62]
Medicaid:
We obtained insular area and state Medicaid expenditure data from
CMS.[Footnote 63] Medicaid enrollee figures were obtained directly from
CMS and the insular areas, but were not consistently available from all
insular areas in all years.
SCHIP:
SCHIP funding, including the initial allotments, supplementary
allocations, and redistribution funds for the insular areas and states
for fiscal years 1999 through 2003 were obtained from the Federal
Register.[Footnote 64] SCHIP enrollee figures were not consistently
available for insular areas.
HHS grants:
We obtained data from HHS's Tracking Accountability in Government
Grants System for fiscal years 1999 through 2003.[Footnote 65] For the
grants provided by three HHS agencies, we evaluated the annual total
and per capita award to each insular area, as well as nationally and
for the selected states.
We totaled the award amounts for each grant in fiscal years 2002, 2003,
and 2004 and identified eight individual grants whose 3-year aggregate
comprised at least 5 percent of all HHS grant funding to any insular
area and were awarded to at least three areas. We obtained the select
grant award amounts from the agencies and computed the per capita award
amounts for each of the insular areas, nationally, and for the selected
states.[Footnote 66]
For the select HHS grants, we obtained information about the
application processes, allocation methods, and administrative
requirements for insular areas and the states from the agencies. To
identify differences in funding allocation methods, we reviewed
relevant federal laws, regulations, and guidance. We augmented that
work with interviews of officials at funding agencies to identify
variations between programs for states and insular areas.
Department of the Interior Grants:
DOI-OIA provided us with the funding totals for health-related grants
provided to insular areas. Grants included funds earmarked for health
care infrastructure, technical assistance, and to offset the cost of
providing services to residents of the freely associated states.
Data Reliability:
For the key sources identified, we obtained comprehensive health
expenditure data for federal fiscal years 1999 through 2003 from the
respective agencies. To assess the reliability of the program
expenditure data, we reviewed relevant documentation, interviewed
knowledgeable agency officials about the data, and conducted electronic
data testing. To assess the reliability of HHS and DOI-OIA data, we
talked with officials about data quality control procedures and
reviewed relevant documentation. We determined the data were
sufficiently reliable for the purposes of this report.
We conducted our work from October 2004 through September 2005 in
accordance with generally accepted government auditing standards.
[End of section]
Appendix II: Changes in Insular Area Health Care Funding Proportions
over Time:
When considered in the aggregate, health care funding in the five
largest insular areas varied little in terms of the proportion of
funding attributable to various sources for fiscal years 1999 through
2003. For each of the years, Medicare represented about three-quarters
of total funding, followed by Medicaid and HHS grants, which each
represented about one-tenth of the total. Funding from SCHIP and DOI
grants together represented 5 percent or less of total funding.
However, Puerto Rico's comparatively large population masks much of the
variation in funding sources that exists in the other insular areas.
These areas, particularly those in the Pacific, are considerably more
reliant upon grant funding, which can fluctuate from year to year. (See
fig. 8 through 13 and tables 4 through 9.)[Footnote 67]
Figure 8: Ratio of Federal Funding Sources for Five Insular Areas,
Fiscal Years 1999 through 2003:
[See PDF for image]
[End of figure]
Table 4: Federal Health Care Spending for Five Insular Areas, Fiscal
Years 1999 through 2003:
Medicare;
1999: $1,192,327,998;
2000: $1,266,268,455;
2001: $1,399,127,443;
2002: $1,548,352,782;
2003: $1,677,804,491.
Medicaid;
1999: $187,080,000;
2000: $193,630,000;
2001: $201,160,000;
2002: $210,430,000;
2003: $226,181,000.
SCHIP;
1999: $72,283,085;
2000: $68,055,124;
2001: $63,252,222;
2002: $39,822,486;
2003: $33,075,000.
HHS grants;
1999: $144,420,702;
2000: $166,695,857;
2001: $189,640,591;
2002: $257,142,673;
2003: $250,283,171.
DOI grants;
1999: $12,230,000;
2000: $13,584,790;
2001: $17,002,352;
2002: $12,085,000;
2003: $13,565,894.
Total;
1999: $1,608,341,785;
2000: $1,708,234,226;
2001: $1,870,182,608;
2002: $2,067,832,941;
2003: $2,200,909,556.
Source: GAO analysis of funding data from Medicare, Medicaid, SCHIP,
grants from three HHS agencies, and DOI.
[End of table]
Figure 9: Ratio of Federal Health Care Funding Sources for American
Samoa, Fiscal Years 1999 through 2003:
[See PDF for image]
Note: Figures may not total to 100 percent due to rounding.
[End of figure]
Table 5: Federal Health Care Spending for American Samoa, Fiscal Years
1999 through 2003:
Medicare;
1999: $4,629,925;
2000: $4,827,064;
2001: $5,602,888;
2002: $7,382,854;
2003: $7,666,176.
Medicaid;
1999: $3,090,000;
2000: $3,200,000;
2001: $3,320,000;
2002: $3,470,000;
2003: $3,727,000.
SCHIP;
1999: $867,397;
2000: $816,661;
2001: $759,027;
2002: $477,870;
2003: $396,900.
HHS grants;
1999: $1,299,877;
2000: $2,178,295;
2001: $2,677,466;
2002: $5,554,821;
2003: $5,123,934.
DOI grants;
1999: $9,657,000;
2000: $9,389,790;
2001: $9,565,502;
2002: $9,392,000;
2003: $9,891,947.
Total;
1999: $19,544,199;
2000: $20,411,810;
2001: $21,924,883;
2002: $26,277,545;
2003: $26,805,957.
Source: GAO analysis of funding data from Medicare, Medicaid, SCHIP,
grants from three HHS agencies, and DOI.
[End of table]
Figure 10: Ratio of Federal Health Care Funding Sources for CNMI,
Fiscal Years 1999 through 2003:
[See PDF for image]
Note: Figures may not total to 100 percent due to rounding.
[End of figure]
Table 6: Federal Health Care Spending for CNMI, Fiscal Years 1999
through 2003:
Medicare;
1999: $3,109,803;
2000: $4,947,156;
2001: $7,498,466;
2002: $7,050,130;
2003: $6,586,360.
Medicaid;
1999: $1,860,000;
2000: $1,930,000;
2001: $2,010,000;
2002: $2,100,000;
2003: $2,255,000.
SCHIP;
1999: $795,113;
2000: $748,606;
2001: $695,775;
2002: $438,047;
2003: $363,825.
HHS grants;
1999: $1,102,221;
2000: $1,090,134;
2001: $1,385,892;
2002: $1,489,705;
2003: $3,305,777.
DOI grants;
1999: $153,000;
2000: $10,000;
2001: $4,152,100;
2002: -;
2003: $230,000.
Total;
1999: $7,020,137;
2000: $8,725,896;
2001: $15,742,233;
2002: $11,077,882;
2003: $12,740,962.
Source: GAO analysis of funding data from Medicare, Medicaid, SCHIP,
grants from three HHS agencies, and DOI.
[End of table]
Figure 11: Ratio of Federal Health Care Funding Sources for Guam,
Fiscal Years 1999 through 2003:
[See PDF for image]
Note: Figures may not total to 100 percent due to rounding.
[End of figure]
Table 7: Federal Health Care Spending for Guam, Fiscal Years 1999
through 2003:
Medicare;
1999: $15,265,639;
2000: $16,994,396;
2001: $18,636,429;
2002: $22,728,513;
2003: $26,832,745.
Medicaid;
1999: $5,230,000;
2000: $5,410,000;
2001: $5,620,000;
2002: $5,880,000;
2003: $6,321,000.
SCHIP;
1999: $2,529,909;
2000: $2,381,930;
2001: $2,213,827;
2002: $1,393,787;
2003: $1,157,625.
HHS grants;
1999: $2,859,071;
2000: $5,795,473;
2001: $7,020,535;
2002: $9,108,189;
2003: $10,495,714.
DOI grants;
1999: $2,420,000;
2000: $4,185,000;
2001: $2,855,000;
2002: $2,633,000;
2003: $3,443,947.
Total;
1999: $28,304,619;
2000: $34,766,799;
2001: $36,345,791;
2002: $41,743,489;
2003: $48,251,031.
Source: GAO analysis of funding data from Medicare, Medicaid, SCHIP,
grants from three HHS agencies, and DOI.
[End of table]
Figure 12: Ratio of Federal Health Care Funding Sources for Puerto
Rico, Fiscal Years 1999 through 2003:
[See PDF for image]
Note: Figures may not total to 100 percent due to rounding.
[End of figure]
Table 8: Federal Health Care Spending for Puerto Rico, Fiscal Years
1999 through 2003:
Medicare;
1999: $1,141,552,210;
2000: $1,209,959,203;
2001: $1,337,114,946;
2002: $1,476,738,502;
2003: $1,599,351,575.
Medicaid;
1999: $171,500,000;
2000: $177,500,000;
2001: $184,400,000;
2002: $192,900,000;
2003: $207,341,000.
SCHIP;
1999: $66,211,306;
2000: $62,338,494;
2001: $57,939,035;
2002: $36,477,397;
2003: $30,296,700.
HHS grants;
1999: $133,820,563;
2000: $149,657,652;
2001: $168,783,855;
2002: $221,260,544;
2003: $216,598,403.
DOI grants;
1999: -;
2000: -;
2001: -;
2002: -;
2003: -.
Total;
1999: $1,513,084,079;
2000: $1,599,455,349;
2001: $1,748,237,836;
2002: $1,921,376,443;
2003: $2,053,587,678.
Source: GAO analysis of funding data from Medicare, Medicaid, SCHIP,
grants from three HHS agencies, and DOI.
[End of table]
Figure 13: Ratio of Federal Health Care Funding Sources for the Virgin
Islands, Fiscal Years 1999 through 2003:
[See PDF for image]
Note: Figures may not total to 100 percent due to rounding.
[End of figure]
Table 9: Federal Health Care Spending for the Virgin Islands, Fiscal
Years 1999 through 2003:
Medicare;
1999: $27,770,421;
2000: $29,540,636;
2001: $30,274,714;
2002: $34,452,783;
2003: $37,367,635.
Medicaid;
1999: $5,400,000;
2000: $5,590,000;
2001: $5,810,000;
2002: $6,080,000;
2003: $6,537,000.
SCHIP;
1999: $1,879,360;
2000: $1,769,433;
2001: $1,644,558;
2002: $1,035,385;
2003: $859,950.
HHS grants;
1999: $5,338,970;
2000: $7,974,303;
2001: $9,772,843;
2002: $19,729,414;
2003: $14,759,343.
DOI grants;
1999: -;
2000: -;
2001: $429,750;
2002: $60,000;
2003: -.
Total;
1999: $40,388,751;
2000: $44,874,372;
2001: $47,931,865;
2002: $61,357,582;
2003: $59,523,928.
Source: GAO analysis of funding data from Medicare, Medicaid, SCHIP,
grants from three HHS agencies, and DOI.
[End of table]
[End of section]
Appendix III: Characteristics of Insular Areas' Medicaid Programs:
To obtain Medicaid federal matching funds, state and insular area
programs are to meet broad criteria related to eligibility, including
categorical, income, and resource requirements. However, the insular
areas vary in the extent to which their eligibility standards comply
with the federal standards. For example, Guam, Puerto Rico, and the
Virgin Islands use the same broad federal categories established in
statute; however, the levels two of these areas use to determine income
eligibility are based on locally established poverty levels rather than
the federal poverty level (FPL). Table 10 compares the federal
categorical and income eligibility standards to those in the insular
areas.
Table 10: Comparison of Federal Medicaid Categorical and Income
Eligibility Standards to Insular Area Standards, Fiscal Year 2004:
Federal eligibility standards: States;
Categories: Five federal categories[A];
Income level in relation to FPL: Varies by category, ranges between
100% to 185% of FPL for low income children to 133% to 185% of FPL for
pregnant women;
Number of enrollees (percentage of total population): 41.9 million
(14%).
Federal eligibility standards: American Samoa;
Categories: No specific categories;
Income level in relation to FPL: At or below FPL;
Number of enrollees (percentage of total population): 37,504 (65%).
Federal eligibility standards: CNMI;
Categories: Individuals whose total income does not exceed 150% of the
SSI federal benefit amount and allowable resource limit;
Income level in relation to FPL: The federal benefit rate is $10,152
per year for an individual and allowable resource limit of $2,000 per
year for an individual;
Number of enrollees (percentage of total population): 9,758 (12%).
Federal eligibility standards: Guam;
Categories: Five federal categories[A];
Income level in relation to FPL: Below FPL;
Number of enrollees (percentage of total population): 25,529 (15%).
Federal eligibility standards: Puerto Rico;
Categories: Five federal categories[A];
Income level in relation to FPL: At or below local poverty level, which
was $4,800 per year for an individual;
Number of enrollees (percentage of total population): 938,266 (24%).
Federal eligibility standards: Virgin Islands;
Categories: Five federal categories[A];
Income level in relation to FPL: At or below local poverty level, which
was about $5,500 per year for an individual;
Number of enrollees (percentage of total population): 16,125 (15%).
Source: GAO analysis of data from CMS, Kaiser Family Health Foundation,
and insular area officials.
Note: In 2004, 100 percent of FPL for an individual was $9,310 per
year, 133 percent of the FPL was $12,382 per year, and 185 percent of
the FPL was $17,224 per year.
[A] The five federal categories are children, pregnant women, adults in
families with children, elderly, and individuals with disabilities.
[End of table]
In addition to eligibility requirements, Medicaid mandates coverage for
certain services. However, as shown in table 3, none of the insular
areas provides coverage for all the mandatory services. Nonetheless,
each insular area, like the states, has chosen to add optional benefits
under the statute, with most providing coverage for outpatient
prescription drugs, clinic services, dental and eye care, and physical
therapy. (See table 11.)
Table 11: Summary of Certain Optional Medicaid Services Covered by
Insular Areas and States, Fiscal Year 2005:
Service: Outpatient prescription drugs;
AS: service covered;
CNMI: service covered[A];
GU: service covered;
PR: service covered;
VI: service covered[B];
Number of states: 51.
Service: Dental services;
AS: service covered;
CNMI: service covered with limitations[C];
GU: service covered;
PR: service covered;
VI: service covered;
Number of states: 45.
Service: Clinic services;
AS: service not covered;
CNMI: service covered;
GU: service covered;
PR: service covered;
VI: service covered;
Number of states: 47.
Service: Prosthetic devices, eyeglasses;
AS: service covered;
CNMI: service covered[D];
GU: service covered;
PR: service not covered;
VI: service covered with limitations[E];
Number of states: 48 and 41.
Service: Physical therapy and related services;
AS: service covered;
CNMI: service covered;
GU: service not covered;
PR: service covered;
VI: service not covered;
Number of states: 34.
Service: Inpatient psychiatric hospital services for individuals under
age 21;
AS: service covered;
CNMI: service not covered;
GU: service not covered;
PR: service not covered;
VI: service not covered;
Number of states: 48.
Service: Personal care services;
AS: service not covered;
CNMI: service covered;
GU: service not covered;
PR: service not covered;
VI: service not covered;
Number of states: 31.
Service: Diagnostic, screening, preventive, and rehabilitative
services;
AS: service not covered;
CNMI: service not covered;
GU: service not covered;
PR: service covered;
VI: service not covered;
Number of states: 35.
Service: Intermediate care facility for individuals with mental
retardation (ICF/MR) services;
AS: service not covered;
CNMI: service not covered;
GU: service not covered;
PR: service not covered;
VI: service not covered;
Number of states: 51.
Service: Targeted case management services (home and community health);
AS: service not covered;
CNMI: service not covered;
GU: service not covered;
PR: service not covered;
VI: service not covered;
Number of states: 50.
Service: Hospice care;
AS: service not covered;
CNMI: service not covered;
GU: service not covered;
PR: service not covered;
VI: service not covered;
Number of states: 48.
Service: Inpatient hospital and nursing facility services for
individuals 65 or over in an institution for mental diseases (IMD);
AS: service not covered;
CNMI: service not covered;
GU: service not covered;
PR: service not covered;
VI: service not covered;
Number of states: 44.
Service: Private duty nursing services;
AS: service not covered;
CNMI: service not covered;
GU: service not covered;
PR: service not covered;
VI: service not covered;
Number of states: 23.
Sources: Insular area officials and The Kaiser Commission.
Notes: Number of states includes Washington, D.C.
The Kaiser Commission on Medicaid and the Uninsured. Medicaid Benefits:
Online Database (The Henry J. Kaiser Family Foundation).
http://www.kff.org/medicaid/benefits/index.jsp (downloaded Aug. 22,
2005).
[A] Drug coverage is limited to a 30-day supply unless a larger
quantity is required for off-island travel. Any quantity larger than
the 30-day supply must be pre-approved.
[B] Prior approval required for prescriptions that cost more than $200.
[C] Most dental services are covered, including fillings and
extractions, and dentures are covered subject to prior approval.
Orthodontics, prosthetics, and root canals are specifically not
covered, and oral surgery is limited to emergencies.
[D] Prior authorization is required for prosthetic devices and
eyeglasses.
[E] Eye clinic care provided to children only.
[End of table]
[End of section]
Appendix IV: Comments from the Department of the Interior:
United States Department of the Interior:
OFFICE OF THE ASSISTANT SECRETARY POLICY, MANAGEMENT AND BUDGET:
Washington, DC 20240:
SEP 16 2005:
Kathryn G. Allen:
Director, Health Care:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Ms. Allen:
Thank you for the opportunity to respond to the U.S. Office of
Government Accountability (GAO) draft report entitled, "U.S. INSULAR
AREAS: Multiple Factors Affect Federal Health Care Funding" (GAO-05-
969).
We strongly support the purpose of this report and look forward to
receiving it in its final form. Improving health care in the insular
areas is a priority of both the insular area governments and the
Department of the Interior. Although the report draws no conclusions
and makes no recommendations, the information will help identify areas
of disparities which may be reviewed for improvement.
If you wish to discuss the report, please contact David B. Cohen,
Deputy Assistant Secretary for Insular Affairs, or Nikolao Pula,
Director of the Office of Insular Affairs at (202) 208-4736.
Sincerely,
Signed by:
P. Lynn Scarlett:
Assistant Secretary Policy, Management and Budget:
[End of section]
Appendix V: Comments from American Samoa:
LBJ Tropical Medical Center:
P.O. Box LBJ:
Pago Pago, American Samoa 96799:
Office of the Chief Executive Officer:
"Commitment to Healthcare Excellence"
September 9, 2005:
Serial#: 142-05:
Ms. Kathryn G. Allen:
Director, Health Care:
U.S. Government Accountability Office:
Washington, D.C. 20548:
Dear Ms. Allen,
Per your communiqué, the LBJ Tropical Medical Center has conducted a
review of the Draft Report to Congress entitled, "U.S. Insular Areas,
Multiple Factors Affect Federal Health Care Funding". We thank you for
the opportunity afforded to review and comment on the draft report.
The GAO report offers a "bird's eye view" of funding by the federal
government to the Insular Areas. This perspective provides a context
which can and does skew the information and its implications at a
jurisdictional level. The LBJ Tropical Medical Center is concerned that
the overview does not provide an accurate representation of primary,
secondary and tertiary medical services costs and revenues, and
furthermore, minimizes or omits local circumstances that in our opinion
are major factors in the analysis of costs versus revenues and the
allocation of federal funding thereof.
Omissions and Oversights:
Due to the report's overview nature, statutory or regulatory barriers
that are of enormous impact to the healthcare services and the costs of
healthcare services in American Samoa are Either minimized or neglected
altogether in its analysis. We feel that in order for the report to
provide a more accurate representation, the following factors need
delineation and emphasis:
* In American Samoa, a local "statute" prescribes that medical
attention will be provided "free of cost" by the government to all
citizens qualified under the law. This provision precludes the LBJ
Tropical Medical Center from charging patients professional physician
or technician, or technologist fees. The provision further stipulates
conditional parameters that severely hamper the hospital's ability to
recapture costs via overhead charges. By extension, because this law
directs the provision of socialized medicine, it acts a barrier to the
development of privately owned and operated healthcare services for the
simple reason that they cannot operate on a competitive basis with low
cost care provided by the government for "all legal residents".
Nowhere in the report is it mentioned that for the Pacific Insular
areas, the major hospitals are government owned and operated. In many
cases, certainly for American Samoa, government owned and operated
hospitals are the sole providers of primary, secondary and tertiary
health care in the islands. This market condition has a large impact on
the availability of services and the inability to develop private
healthcare interests in the territory. There are no nursing care
homes/facilities in the American Samoa because 1) the LBJ Tropical
Medical Center provides long term care as part of its in-patient
services; 2) this deters private interests from developing independent
services due to the inability to compete with government level charges.
* The report cites that American Samoa has a sizable dialysis facility
yet does not have a Nephrologist. This is an erroneous statement. The
LBJTMC has since it began dialysis services nearly 20 years, maintained
a consultant contract with a qualified Nephrologist at the St. Francis
Medical Center. This contractor provides regular patient contact and
treatment orders for all the dialysis patients in the territory on a
frequency and manner that has met and will continue to meet quality of
care standards of the Centers for Medicaid and Medicare Services, U.S.
Department of Health and Human Services.
Again we appreciate the opportunity to review the draft report and hope
that our comments assist you in providing a report of meaning and
substance to Congress.
Sincerely,
Signed by:
Taufete'e John Faumuina:
Chief Executive Officer:
[End of section]
Appendix VI: Comments from the Commonwealth of the Northern Mariana
Islands:
Commonwealth of the Northern Mariana Islands:
Office of the Attorney General:
CIVIL DIVISION:
September 16, 2005 (Mainland Date):
Kathryn G. Allen, Director, Health Care:
Susan T. Anthony, Assistant Director:
US Government Accountability Office:
Washington, DC 20548:
Via Email: allenk@gao.gov; anthonys@gao.gov:
Re: Draft Report Entitled U.S. Insular Areas: Multiple Factors Affect
Federal Health Care Funding (GAO-05-969):
Dear Ms. Allen and Ms. Anthony:
I appreciate the opportunity to respond to GAO's draft report. Please
forgive me if I am too direct, but I don't know any other way to talk
about these matters.
This is an important report but a disappointing one because it fails to
recommend anything to right the terrible wrong of the outright
discrimination in federal health care funding against Pacific Islanders
and other minorities in the insular areas.
Buried on page 30 of the report is the most important statement of fact
in the report:
Federal Medicaid spending per capita was also lower in the insular
areas compared to the states. In fiscal year 2003, federal Medicaid per
capita spending in the states averaged $565 compared to between $33 and
$65 for the insular areas. Poorer states with higher federal matching
rates received as much as $813 in federal Medicaid per capita spending-
more than 12 times the amount received by any insular area.
The accompanying chart on page 31 shows what the CNMI received in 2003
in federal funding as compared to its sister states with the same high
rates of poverty: CNMI received $33 per capita, as compared to $805 for
Mississippi and $813 for West Virginia. That means CNMI Medicaid
patients 4% of what Mississippi and West Virginia Medicaid patients got
in federal funding. The difference is not 12 times. It is 25 times
greater in Mississippi and West Virginia than in the CNMI though all
have roughly the same percentage of poor people.
Shockingly absent from the GAO report is the commonsense recommendation
[NOTE 1] to stop the discrimination and treat Pacific Islanders and
other insular minorities equally to other Americans by:
1) eliminating the Medicaid cap,
2) applying the FMAP based on actual poverty rates as in the states, 3)
adjusting SCHIP and DSH payments, and,
4) providing additional pharmacy funds that mirror the amount of
Medicare Part D drug benefits.
Because of the Medicaid cap and the FMAP rate, the entire federal
contribution to the CNMI Medicaid program can be and usually is wiped
out every year by the off island care costs of one baby with congenital
heart disease or a child with leukemia, along with outpatient drug
costs, including very expensive medications for hemophiliac patients.
Nothing then remains to assist with preventative care and the other
direct medical care costs of the many thousands of other poor, sick,
elderly, and disabled Pacific Islanders.
Absent from the report is any discussion from the literature about the
negative health outcomes that result when people (any people) do not
receive basic, primary health care and preventative health services.
Absent is any mention of the difficulty of recruiting and retaining
qualified physicians and other health care workers when the pay is so
low, modern equipment and consulting specialists are generally
unavailable, and the workload is so great, all due to lack of adequate
federal funding for health care.
There is no discussion of the impact on other necessary government
services when so much of local funds must go for health care services
covered by the federal government elsewhere. What happens to schools
and social services and roads and public safety when so much is drained
from local sources to pay the federal government's share of health care
costs?
The report notes that nursing home and transportation services [NOTE 2]
are not provided in most if not all of the insular areas as Medicaid
benefits, though they are mandatory Medicaid services. The report then
suggests that this may be a satisfactory state of affairs because the
federal government does not penalize the territories for not providing
them, or maybe they aren't provided because there are no providers, or
maybe they do not exist because of "cultural differences." The truth is
that they don't exist because there is no money to fund them due to the
Medicaid cap and the low FMAP rate. Nursing home and transportation
services are important and that is why they are mandatory services
under Medicaid. However, there are no funds to provide them. Likewise
home health care services, hospice, psychiatric care for children,
intermediate care facility services for the mentally disabled, and
other Medicaid benefits routinely available in the states are similarly
important for good health, but they can't be provided without federal
participation.
The report seems to suggest that absence of equal federal funding
should be excused because some insular areas (like the CNMI) have
chosen to use Medicaid funds for an optional service, i.e. outpatient
prescription drugs. However, the report fails to say that such benefits
are covered by Medicaid in every state and in the District of Columbia
because they are critical to health. Not to cover them would be
inconsistent with the purposes of the Medicaid Act, increase other
health care costs, and undermine the effectiveness of other Medicaid
services.
There are references to Compact Impact and other grant funds (such as
bio-terrorism funds) and it is implied that these grants somehow
ameliorate the adverse health effects of the discrimination in the
Medicaid and Medicare [NOTE 3] programs. However, the adequacy of these
funds to actually cover all the needs for services caused by the
migration of people from the Freely Associated States is not examined.
Further, though grant funds are very important and much appreciated,
they are simply are not enough to replace ongoing primary care cost
reimbursement for thousands of Medicaid eligible people. [NOTE 4] Bio-
terrorism funds, for example, are used for preparedness and capacity
building, not direct patient care.
So, I ask that you revise your report to address these issues and most
importantly, that the report adopt the recommendations listed above.
Yours truly,
Signed by:
Debra Knapp, Assistant Attorney General:
Cc: CNMI Secretary of Public Health: Dr. James U. Hofschneider:
NOTES:
[1] This report contains no recommendations. Other GAO reports are
replete with recommendations.
[2] The cost of transporting a Medicaid patient from the CNMI to a
Hawaii or California referral center, and housing costs there, are very
expensive, averaging $2,000 per patient for airfare and $80 per day for
housing.
[3] The report also states that Medicare spends roughly half per
recipient in the insular areas than it does in the states.
[4] 12% of the people in the CNMI receive Medicaid benefits, though it
has a much higher than average poverty rate. The national average is
14% of the population receiving Medicaid benefits.
[End of section]
Appendix VII: Comments from the Commonwealth of Puerto Rico:
COMMONWEALTH OF PUERTO RICO:
ANIBAL ACEVEDO VILA:
GOVERNOR:
September 26, 2005:
Mr. David M. Walker:
Comptroller General of the United States:
U.S. Government Accountability Office:
441 G Street NW:
Washington, DC 20548:
Dear Mr. Walker:
As Governor of the Commonwealth of Puerto Rico, I am concerned about
the federal healthcare resources available to over 4 million U.S.
citizens on the Island. My advisors have carefully reviewed the draft
report Healthcare Funding in Insular Areas (GAO 05-969). Enclosed
please find detailed comments. Yet, I would like to highlight the
following points:
First, while the report describes Federal healthcare support, it is
also important to review the relationship between the Federal and
Commonwealth healthcare resources, and compare it to the relationship
between the states and the Federal government. This is critical
information in order to understand Federal healthcare policies related
to Puerto Rico.
In FY `03 the Federal and Commonwealth governments invested $3.3
billion in Medicare, Medicaid and the S-Chip programs in Puerto Rico.
Of this amount, the Commonwealth expended $1.3 billion or a 43 per cent
share of the $3 billion. Nationwide, states and the Federal government
expended $758 billion for the same programs with the states
contributing $238 billion or just 29 per cent of the total expenditure.
The $2 billion of Federal healthcare funds invested in Puerto Rico is
critical, and as a result the current Federal/Commonwealth healthcare
partnership results in a 43 percent contribution by the Commonwealth
for these three important programs while states on average contribute
29 percent The difference between the Federal government's 71 per cent
contribution to the states and 58 percent contribution to the
Commonwealth is a gap that is not stagnant but that grows each year.
The impact of this gap creates significant quality of care and
financial pressures on the Puerto Rico healthcare system.
Second, there are critical programmatic barriers to a balanced
healthcare partnership. There are essentially four Federal policies
which GAO highlights in the report that are the barriers to a more
balanced partnership that would more closely resemble the current
Federal/state partnership. These include:
A. Medicaid cap. The Medicaid statute calls for the Commonwealth and
Federal government to share eligible expenses 50-50; however, because
of the Medicaid cap the Commonwealth cannot receive more than $219
million for Medicaid expenses. The effect of the cap is that the
Commonwealth finances over 80 of Medicaid costs and the Federal
government supports 20 percent If the Medicaid cap which was
established in 1968 had been authorized to grow at the same rate as the
Medicaid program, the cap would now approximate $1.7 billion as opposed
to $219 million. The cap has effectively kept Federal per capita
support for Medicaid in Puerto Rico to $50 per year as reported by GAO,
and it has forced the Commonwealth to take on financial responsibility
to a much greater extent than any state. Testimony has been provided to
the Senate and House Committees of jurisdiction and the Department of
Health and Human Services (HHS) Medicaid Commission outlining a plan
for rebalancing Commonwealth/Federal healthcare partnership and a key
element to address that imbalance is by authorizing critical
expenditures outside of the current cap.
B. S-Chip Allocation. States receive S-Chip allocations based upon a
formulation that predicts the relative number of children who need
health insurance. The Commonwealth does not receive its funds based
upon this formulation but receives a "seaside" that equates to less
than one quarter of one percent of the funds available. However, the
Commonwealth has 1.5 percent of children under 17 in the U.S. which
over 50 percent of these children living in poverty received less than
one-quarter of one percent of the S-Chip allocation. A significant step
in rebalancing the overall Commonwealth/Federal partnership would be to
include the Commonwealth in the statutory allocation of funds as
opposed to the set-aside process.
C. Medicare DSH and DRG. While workers and employers pay the same
Medicare taxes as other workers in the US, hospitals in Puerto Rico are
not eligible to receive disproportion share payments and the DRG
reimbursement rate is calculated differently than for hospitals in the
states. These two critical differences in the reimbursement structure
for Puerto Rico hospitals undermine the capitalization and financial
vitality of hospitals and create additional barriers to providing
quality healthcare services to the island's elderly.
Third, there are critical regulatory barriers to a balanced healthcare
partnership. Currently, several Federal regulatory standards are
imposed by a variety of agencies to states that receive some financial
assistance through Medicaid. I recognize that CMS has attempted to be
flexible in its enforcement of Medicaid regulatory standards --as
indicated in the report--because of the Medicaid cap in Puerto Rico.
Fortunately, CMS recognizes that an attempt to mandate significant
additional Federal requirements when the Commonwealth is already
financing 80 percent of Medicaid is not an adequate policy.
However, I am surprised that other agencies of the Federal government
within the jurisdiction of the Secretary of Health and Human Services
have not adopted similar policies. For example:
* the Commonwealth Medicaid program is required to meet the standards
of the Health Insurance Portability and Accountability Act (HIPPA) but
with no additional Federal support.
* the Health Resources and Services Administration (HRSA) has supported
legal action instituted by community health care centers in Puerto Rico
to see additional Medicaid reimbursements.
* the Administration for Children and Families requires the
Commonwealth to meet various requirements under the Temporary
Assistance for Needy Families (TANF) program, but the Medicaid cap
prevents CMS from providing persons leaving welfare in Puerto Rico to
go to work with transitional medical assistance, a program used by
every state.
In addition, it is quite troubling that there are other Federal
agencies which have instituted legal action to force the Commonwealth
to spend Commonwealth funds on Medicaid eligible expenses. For example,
on April 21, 1999, the U.S. Justice Department filed action which
resulted in the Commonwealth of Puerto Rico signing a consent decree to
implement provisions of the Olmstead decision. States have authority to
receive additional Medicaid reimbursement for Olmstead related
expenses, but the Medicaid cap precludes the additional Federal support
for Puerto Rico.
A major contribution to rebalancing the Commonwealth/Federal healthcare
partnership would be to align Federal policies so that regulatory
requirements are more consistent with the programmatic and financial
policies of the Federal government.
The GAO report provides the foundation for Congress to move forward in
addressing the imbalance in the Federal/Commonwealth healthcare
partnership. The report describes many of the challenges that have
created the current imbalance in this partnership, such as the Medicaid
cap. The efforts of the GAO in moving forward with this report are
greatly appreciated and will be of great assistance to the Commonwealth
in working with Congress to address the inequity of this critical
healthcare partnership.
Sincerely,
Signed by:
Anibal Acevedo Vila:
[End of section]
Appendix VIII: GAO Contact and Staff Acknowledgments:
GAO Contact:
Kathryn G. Allen (202) 512-7118 or allenk@gao.gov:
Acknowledgments:
In addition to the contact named above, Susan T. Anthony, Assistant
Director, Gerardine Brennan, Richard Lipinski, Michaela M. Monaghan,
Mary Reich, and Margaret J. Weber made key contributions to this
report.
FOOTNOTES
[1] These five insular areas are the subject of this report. Nine
smaller insular areas of the United States, which are not included in
the scope of this report, are Navassa Island in the Caribbean Sea, and
Baker Island, Howland Island, Kingman Reef, Jarvis Island, Johnston
Atoll, Midway Atoll, Palmyra Atoll, and Wake Island in the Pacific
Ocean.
[2] Throughout this report, the term states refers to the 50 states and
the District of Columbia.
[3] Those born in American Samoa are considered to be American
nationals of the United States. An American national is either a
citizen or someone who "owes permanent allegiance to the United
States." 8 U.S.C. § 1101(a)(21), (22) (2000). While American nationals
are not entitled to all the benefits for which only citizens qualify,
they are not aliens and therefore cannot be expelled or deported.
[4] Since 1984, Medicare payments to most hospitals have been based on
PPS instead of on their allowable incurred costs, which was the
previous practice. Under PPS, each hospital receives a standard rate
for each discharge related to a specific diagnosis, which is adjusted
based on local costs and the delivery setting.
[5] Memorandum of the President, Nov. 30, 1992, 57 Fed. Reg. 57,093
(1992). For a more thorough discussion of the applicability of the
provisions of the Constitution to the five insular areas, see GAO, U.S.
Insular Areas: Application of the U.S. Constitution, GAO/OGC-98-5
(Washington, D.C.: Nov. 7, 1997).
[6] The Territorial Clause of the Constitution authorizes the Congress
to "make all needful Rules and Regulations respecting the Territory or
other Property" of the United States. U.S. Const. art. IV, § 3, cl. 2.
Relying on the Territorial Clause, the Congress has enacted legislation
making some provisions of the Constitution explicitly applicable in the
insular areas. In addition to this congressional action, courts from
time to time have ruled on the application of constitutional provisions
to one or more of the insular areas.
[7] By comparison, the nearest state to Hawaii is California at 2,400
miles away. The distance from Anchorage, Alaska, to Seattle,
Washington, is approximately 1,400 miles. Puerto Rico and the Virgin
Islands are located in the Caribbean and are both about 1,000 miles
from Florida.
[8] The 1999 median household income for Mississippi and West Virginia
was $31,330 and $29,696 respectively.
[9] Federally Qualified Health Centers (FQHC) are entities that receive
federal grants as community health centers under section 330 of the
Public Health Service Act and typically provide a variety of services,
including physicians' services and services provided by physician
assistants and nurse practitioners. (Codified at 42 U.S.C. § 254b
(2000)).
[10] To varying degrees, each of the insular areas qualifies for one or
more federal designations that are used to indicate areas with a
shortage of providers--Health Professional Shortage Areas (HPSA),
physician scarcity areas (PSA), and Medically Underserved Areas (MUA)-
-which may help them qualify for certain grants or for increased
Medicare payments. A HPSA is computed based on factors including
primary care physician ratio, poverty rates, and infant mortality rate,
and is used as a qualifying criterion for certain federal grants and a
10 percent increase in payment rates for Medicare providers. A PSA is
computed based on the ratio of primary care physicians to Medicare
beneficiaries and is used to qualify Medicare providers for a 5 percent
increase in payments. Providers in areas that are designated as both
HPSA and PSA qualify for both payment increases. A MUA is computed
based on factors including the ratio of primary care providers to the
population, the percentage of the population over 65, and the poverty
level, and is used as a qualifying criterion for certain federal
grants.
[11] Traditionally, Medicare has paid for covered services on a fee-
for-service basis. Medicare Advantage, known as Part C, encompasses
private managed care plans that provide Medicare-covered benefits to
enrollees. Beneficiaries who opt for Medicare Advantage plans must pay
the Part B premium.
[12] This fee is waived for certain low-income beneficiaries in the
states. For more details on the savings provided by the discount drug
card, see GAO, Prescription Drug Discount Cards: Savings Depend on
Pharmacy and Type of Card Used, GAO-03-912 (Washington, D.C.: Sept. 3,
2003).
[13] The Balanced Budget Act of 1997 established SCHIP as Title XXI of
the Social Security Act. Pub. L. No. 105-33, § 4901, 111 Stat. 251, 552-
574. SCHIP is set out at 42 U.S.C. § 1397aa et seq. (2000).
[14] Through agreements with the U.S. government, residents of the
freely associated states--the Federated States of Micronesia, the
Republic of the Marshall Islands, and the Republic of Palau--may enter
the United States to live and work without limitations on their length
of stay. Visitors from these areas are eligible for public services,
such as health care and education.
[15] The estimate for total federal health spending in the insular
areas is limited to spending from key sources, as identified in
appendix II.
[16] Other HHS agencies, such as the Agency for Healthcare Research and
Quality (AHRQ), CMS, and the National Institutes of Health (NIH), also
awarded grants to the insular areas during this time. However, we did
not include grants from these agencies for a number of reasons. For
example, grants from AHRQ and NIH were targeted exclusively to
research. Grants from CMS, apart from Medicaid and SCHIP funding,
represented less than 1 percent of HHS grant funding to the insular
areas from fiscal years 1999 through 2003.
[17] DOI does not have jurisdiction over Puerto Rico; therefore, the
island is not eligible for DOI grants.
[18] DOI grants are generally large awards of short duration--1 to 5
years--and targeted to address specific needs, thus creating
significant year-to-year fluctuation. For example, the large increase
in CNMI in 2001 was due to an influx of funding earmarked for specific
construction projects.
[19] By comparison, federal health care funding in the states increased
by 39.5 percent from fiscal years 1999 through 2003.
[20] When Medicare's inpatient PPS was implemented in 1984, it did not
include hospitals in the insular areas. Hospitals in Puerto Rico
lobbied to be included in the PPS and were transitioned into the system
in 1987.
[21] TEFRA established this payment methodology for classes of
hospitals not included in PPS. The target amount is the PPS-exempt
provider's Medicare-allowable costs per patient stay in a designated
base year, inflated to the current year by an annual update factor.
Pub. L. No. 97-248, § 101(a)(1), 96 Stat. 324, 331-333.
[22] Hospitals in American Samoa and CNMI are not subject to the TEFRA
payment methodology because they do not have the capacity to complete
the full cost report required by this methodology.
[23] The Medicare Prescription Drug, Improvement, and Modernization Act
of 2003 (MMA) provided the insular areas with $35 million, which was to
be allocated among them based on their Medicare enrollment as of July
1, 2003, to assist Part D eligible individuals (as outlined in 1935(e))
with the purchase of prescription drugs. Pub. L. No. 108-173, §101, 117
Stat. 2066, 2146 (amending 42 U.S.C. § 1395w-141(j)). CMS provides
these funds to the insular areas in the form of an enhanced allotment
to their Medicaid program funds.
[24] Alaska and the District of Columbia have matching percentages that
are higher than what would be calculated under the FMAP formula.
Alaska's higher matching rate, which is about 58 percent, was
authorized by the Medicare, Medicaid, and SCHIP Benefits Improvement
and Protection Act of 2000. Pub. L. No. 106-554, App. F, § 706, 114
Stat. 2763, 2763A-577. The District of Columbia's higher matching rate,
which is currently 70 percent, was authorized by the Balanced Budget
Act of 1997. Pub. L. No. 105-33, § 4725 and tit. XI, 111 Stat. 251, 518
and 712.
[25] 42 U.S.C. § 1308(a), (f) (2000). As a result, payments in insular
areas increased about 21 percent during fiscal years 1999 through 2003,
while the increase in the states, bound only by state contributions to
the Medicaid program, was about 49 percent.
[26] For example, a CNMI official told us that a single patient
requiring expensive off-island care, such as a baby with congenital
heart disease or a child with leukemia, can consume a large portion of
the available federal Medicaid contribution.
[27] For example, CMS officials told us that each year, the Virgin
Islands Medicaid program becomes further in arrears with providers and
must use current cap allotments to cover past due payments to
providers.
[28] See 42 U. S. C. § 1396r-4 (2000). Similarly, the Social Security
Act provides for a shorter extension of transitional medical assistance
eligibility for Medicaid beneficiaries who lose eligibility due to
increased resources or hours of work in the insular areas, as opposed
to the states. In these circumstances, beneficiaries in the insular
areas are provided up to a 4 month extension of eligibility (42 U.S.C.
§ 1396a(e)(1)(A)) while beneficiaries in the states are provided up to
a 12 month extension of eligibility (42 U.S.C. § 1396r-6(a), (b)).
[29] The disbursement proportions for the SCHIP allotment for insular
areas are as follows: Puerto Rico-91.6 percent; Guam-3.5 percent; the
Virgin Islands-2.6 percent; American Samoa-1.2 percent; and CNMI-1.1
percent.
[30] As a result, the insular areas received about 1 percent of the
total SCHIP allotment. The Congress did not provide similar,
supplemental SCHIP funds to states. In addition, for fiscal years 1998
through 2002, all the insular areas also received redistribution funds,
which are available SCHIP funds not expended by states within the prior
3-year period. Insular areas are eligible for 1.05 percent of the total
redistribution funds, which are allocated among them according to the
percentages of the initial allotment. The amount of SCHIP funds
available for redistribution has declined over time. For example, while
these funds increased the insular areas' share of the total SCHIP
allotment by 0.7 percent in 1999, they added only about 0.2 percent of
the total SCHIP allotment in 2002.
[31] The Pacific Insular areas receive a base amount of $50,000 while
Puerto Rico and the Virgin Islands are treated like states in the
determination of grant funding. States with more than 90 living AIDS
cases receive a base amount of $500,000; those with 90 or fewer AIDS
cases receive a base rate of $200,000.
[32] HHS officials stated that the Vaccines for Children grant is
allocated differently to the insular areas because their public health
infrastructures are so much different than the states. Therefore, the
agency tailors funding to these areas to ensure that the program
fulfills its statutory requirement of providing vaccines to eligible
children.
[33] A small portion of the gap is attributable to cost of living
differences in the insular areas compared to the states. However, even
when adjusting Medicare payment rates to account for differences in the
cost of providing health care in different locations, the gap in per
beneficiary spending in the states versus the insular areas remained
significant.
[34] The Medicare DSH program provides supplementary payments to
hospitals that serve a large number of low-income and uninsured
patients. DSH payments are only available to hospitals that are paid
based on the PPS; therefore, hospitals in the other insular areas are
not eligible for these payments.
[35] Under TEFRA, the payments to hospitals in the Virgin Islands are
the Medicare-allowable costs per patient stay in a designated base
year, inflated to the current year by an annual update factor. A fiscal
intermediary is a private company that has a contract with the Medicare
program to pay Part A and some Part B bills. Cooperativa de Seguros de
Vida de Puerto Rico, the fiscal intermediary serving the Virgin
Islands, believes that the base-year cost estimates for facilities in
the Virgin Islands may be understated, leading to costs that exceed
Medicare payments.
[36] For this analysis, major medical procedures are services
classified as such by the Berenson-Eggers Type of Service codes, which
were developed by CMS primarily for analyzing growth in Medicare
expenditures for services, including major cardiovascular procedures
such as angioplasty, pacemaker insertion, and bypass surgery.
[37] Medicare does not pay for services provided by noncertified
providers and such services would not be captured in the Medicare data
we analyzed.
[38] The percentage of Medicare beneficiaries enrolled in Part B in
July 2003 ranged from 68 to 79 percent in all insular areas but the
Virgin Islands, where enrollment was 91 percent.
[39] Approximately 3 months prior to their 65th birthdays, eligible
individuals receive Part A enrollment information and an enrollment
card for Part B. To opt out of Part B coverage, individuals must return
the Part B card to the CMS contractor handling claims for services in
their area.
[40] Individuals who do not enroll in Part B when they are first
eligible may sign up for coverage during specified open enrollment
periods. However, in most cases, the Part B premium increases 10
percent for each 12-month period that an individual could have had Part
B but did not select it.
[41] State Medicaid agencies provide cost-sharing assistance to certain
low-income Medicare beneficiaries. However, because of the statutory
cap on federal Medicaid funding, most of the insular areas do not
participate in these assistance programs, although some insular areas
pay for the Part B premiums for select Medicare beneficiaries.
[42] The 1972 amendments to the Social Security Act, which created
automatic enrollment procedures for Part B, specifically exempted
residents of Puerto Rico. 42 U.S.C. § 1395p(f),(g).
[43] Local law requires American Samoa to provide health care free of
cost to all residents, which is funded by both federal and local
sources. According to an American Samoa official, this law precludes
the government owned and operated hospital from charging patients
adequate physician fees and also deters the development of private
health care services as private facilities can not compete with the
subsidized care provided by the government.
[44] Even when adjusting for differences in costs of living, the gap in
per capita spending remains. Using Medicare geographic indices to
account for differences in the cost of providing health care in
different locations, per capita spending in the states was eight times
that in the insular areas.
[45] Section 1902(j) of the Social Security Act allows the Secretary of
HHS to waive or modify Medicaid requirements with respect to American
Samoa and CNMI, except for the Medicaid cap, the statutorily set FMAP,
and payment for Medicaid services described in section 1905(a), which
includes all of Medicaid's mandatory services.
[46] Puerto Rico and the Virgin Islands determine Medicaid eligibility
based on locally established poverty levels, which, at less than the
federal poverty level, are more restrictive in terms of enrollment.
According to officials in these areas, restricting eligibility allows
them to target Medicaid services to fewer, albeit needier, individuals.
[47] Rural health clinics (RHC) are clinics located in areas designated
by the Bureau of Census as rural and by the Secretary of HHS as
medically underserved or having an insufficient number of physicians.
In order to be certified as a RHC, requirements under 42 C.F.R. § 491et
seq. must be met. As of June 2004, Connecticut, Delaware, D.C.,
Maryland, Massachusetts, New Jersey, and Rhode Island did not have RHCs
that met these criteria. See GAO, Health Centers and Rural Clinics:
State and Federal Implementation Issues for Medicaid's New Payment
System, GAO-05-452 (Washington, D.C.: June 17, 2005).
[48] According to an American Samoa official, no free-standing nursing
facilities exist in American Samoa because its only major hospital,
which is government owned and operated, provides long-term care as part
of its inpatient services. The availability of these services within
the hospital has deterred private interests from developing nursing
facilities because they can not compete with government-provided care.
[49] Officials from Puerto Rico pointed out that although CMS has not
enforced the provision of mandatory Medicaid services, other federal
entities, including the U.S. Department of Justice and HRSA, have
successfully taken or encouraged enforcement actions against Puerto
Rico regarding certain Medicaid-eligible expenses.
[50] According to a CNMI official, the federal cap on Medicaid funding
has contributed to its difficulties in recruiting and retaining
qualified physicians and other health care providers.
[51] For purposes of this report, we consider transportation to be a
mandatory Medicaid service. Although coverage for transportation is not
explicitly required under the federal Medicaid statute, several
regulations indicate that states must provide transportation services
as part of their Medicaid programs. 42 C.F.R. § 431.53 requires state
Medicaid programs to ensure necessary transportation for beneficiaries
to and from providers. 42 C.F.R. § 440.170 (a) defines transportation
to include expenses for transportation and other related travel
expenses determined to be necessary by the agency to secure treatment
for a beneficiary. 42 C.F.R. § 441.62 requires the EPSDT program to
offer assistance with transportation to program beneficiaries.
[52] Although state Medicaid programs must generally allow recipients
freedom of choice among health care providers participating in
Medicaid, the insular areas are exempt from this requirement.
[53] An SCHIP Medicaid expansion must use Medicaid's enrollment
structures, benefit packages, and provider networks, whereas SCHIP
programs separate from Medicaid have greater flexibility in design and
may introduce limited cost sharing or offer different benefit
packages.
[54] When SCHIP funding first became available, Guam used some of these
funds to pay for services provided to a group of children who
previously received services through Guam's Medically Indigent Program.
Remaining SCHIP funds are used to pay for services provided to children
enrolled in Medicaid once the cap has been met.
[55] These agencies were the Agency for Healthcare Research and
Quality, CDC, the Centers for Medicare & Medicaid Services (CMS),
Health Resources and Services Administration (HRSA), National
Institutes of Health, and the Substance Abuse and Mental Health
Services Administration (SAMHSA).
[56] Grants to the insular areas from other HHS agencies, such as the
Agency for Healthcare Research and Quality (AHRQ) and the National
Institutes of Health (NIH), were excluded from our analyses because
they were targeted exclusively to research. Grants from CMS, apart from
Medicaid and SCHIP funding, were also excluded as they represented less
than 1 percent of HHS grant funding to the insular areas from fiscal
years 1999 through 2003.
[57] Any per capita analysis is based on population from the 2000
Census.
[58] Expenditure data for the insular areas was computed using the
Standard Analytic Files for institutional claims and the National
Claims History File for Physician and Supplier Claims Data, extracted
January 2005. Beneficiary computations used the CMS Denominator File,
extracted May 2005.
[59] We received Part C expenditures for the insular areas from CMS for
January 2005 and inpatient expenditures for the insular areas as of
June 2005.
[60] National Health Expenditure data was calculated for the fiscal
year and based on the 2005 Trustees' Report.
[61] Beneficiary computations used the CMS Denominator file, extracted
May 2005.
[62] Extracted January 2005.
[63] State-reported Medicaid Form 64 data, available on the CMS Web
site, were used for state expenditures.
[64] Insular area data came from Federal Register announcements of
insular area SCHIP allocations and redistribution amounts.
[65] Data for the insular areas received December 2004, data for the
states received January 2005.
[66] Any per capita analysis is based on population from the 2000
Census.
[67] Fiscal year 2003 does not include SCHIP redistribution funds,
which are available SCHIP funds not expended by states within the prior
3-year period.
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