CHAPTER 7 The Question of Money: Paying for the Expanded Role of the IV-D Program in Obtaining Health Care Coverage for Children

CHAPTER 7
The Question of Money: Paying for the Expanded Role of the IV-D Program in Obtaining Health Care Coverage for Children

CHAPTER 7 AT A GLANCE
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INTRODUCTION, 7-1
CURRENT IV-D FUNDING STRUCTURE, 7-3
POLICY ISSUES RELATED TO IV-D FUNDING, 7-4
    Enhanced Federal Financial Participation (FFP), 7-5
    Medical Support Performance Incentive Measure, 7-6
    Cross-Program Funding, 7-10
Theme
To improve the establishment, implementation, and enforcement of medical child support, the Working Group has made recommendations that will considerably enhance the responsibilities of child support enforcement agencies. IV-D agencies may need to undertake significant restructuring in order to incorporate new options, and new tools, into their core functions. Without sufficient resources, the Working Group's recommendations cannot be implemented and many of the identified barriers to medical child support enforcement will remain. This chapter lays out a Federal funding scheme to support, and ultimately reward, successful implementation of these recommendations by IV-D

Introduction

Historically, child support enforcement was a private matter, financed by parents and governed by State law. State and local governments became involved only if a child needed public assistance. For almost the past fifty years, however, there has been increasing Federal involvement in both the structure and the funding of child support activities.¹

An examination of the historic funding of the child support enforcement program established in Part D of Title IV of the Social Security Act (IV-D) reveals that Congress has continually adapted program funding to encourage activities which it believes are important to program improvement.

The IV-D program benefits from a generous Federal funding formula. In fiscal year 1997, the Federal government paid over $2.3 billion to States for the operation of child support enforcement programs. State and local governments appropriated an additional $1.1 billion.² The Federal contribution is essential to the success of the child support program. Federal funds defray a majority of the costs of State child support agencies, and are instrumental in determining the agencies' functions and directing the priorities of the program.

History of Federal Funding of the IV-D Program
In 1950, without providing funding, Congress required welfare agencies to inform appropriate law enforcement officials when AFDC was furnished to a child who had been abandoned by a parent. The rationale was to encourage law enforcement officials to take action, including the filing of non-support proceedings against those who had abandoned their children.³

In 1967, recognizing that its earlier efforts had met with limited success and that many families became dependent on welfare because they could not obtain child support, Congress required states to set up a single State organizational unit to take responsibility for establishing paternity and obtaining child support for deserted children who receive AFDC. Federal funding at a 50% Federal Financial Participation (FFP) matching rate was made available for this important purpose.⁴

In 1975, recognizing that better child support enforcement might reduce the need for families to resort to welfare, Congress added Title IV, Part D, to the Social Security Act. Rather than expanding upon the requirements already contained in Title IVA, Congress chose to create a separate program. This change emphasized a major break with the past: the new program was to serve non-AFDC families as well as those receiving AFDC. Moreover, the Federal government substantially increased its funding for child support activities. FFP at a 75% rate was made available for serving both AFDC and non-AFDC cases.⁵ This legislation also provided states with "incentive payments" when they made cash collections in AFDC cases: the State could retain 25% of the amount collected for a family for the first 12 months of collection and 10% of the amount collected thereafter.⁶

In 1980, the FFP rate was altered in several significant respects. To encourage the states to automate their child support systems, the FFP matching rate for automation activities was raised from 75% to 90%. At the same time, in order to have the states pick up a greater share of basic program costs, FFP was reduced from 75% to 70% effective October 1, 1982. The incentive payment formula was also changed. States were given a flat 15% of all AFDC collections as an incentive.⁷

In 1984, the funding changed again. FFP for basic program functions was reduced, over a three year period, from 70% to 66% where it remains today. To encourage automation efforts, however, FFP at the 90% level remained available and hardware costs were made reimbursable at this higher rate. A new incentive payment structure was also put in place. This structure rewarded states for making collections in non-AFDC as well as AFDC cases.⁸

In 1988, to emphasize the growing importance of establishing paternity, Congress provided 90 percent FFP for the laboratory costs associated with determining paternity.⁹

In 1998, Congress again changed the incentive payment system. Incentive funding was now to be based on the performance of States in key areas. This was a significant step away from a compliance-based system to performance. Incentive payments are now provided for establishing paternity, establishing support orders, collecting current support, collecting arrears and cost-effectiveness.¹⁰ Congress also asked that an incentive payment formula for medical support enforcement be developed. At the same time, Congress capped the amount of money available for incentive payments.¹¹

With this context in mind, the Working Group analyzed the funding stream for activities related to medical child support enforcement and the impact the funding mechanisms have on policy choices. The recommendations that follow support the programmatic reforms addressed elsewhere in this Report or that may arise with further study.

Current IV-D Funding Structure

Funding for the child support enforcement program is provided in three general ways.

1- Federal Administrative Funding

The largest share of program funding comes from Federal administrative funds. The Federal government provides 66 percent of the operating funds for State child support programs.¹² Federal funding at this rate is "open ended" in that it pays its percentage of expenditures by matching the amount spent by State and local governments, with no upper limit or ceiling. Federal law and regulations dictate the specific expenditures for which this 66 percent FFP is available, and the Federal government reviews expenditures to determine whether they were reasonable.¹³

2- State and Local Administrative Funding

In order to receive any Federal funding, State and/or local governments must provide 34 percent of the funds needed to operate their child support enforcement programs. Most States pay for a majority of child support expenditures from the State's general revenue. Some states pay administrative costs from the portion of TANF child support collections retained by the State. In some States, county governments pay a portion of or the entire State share. States also have the option to charge fees and recover costs for services from the custodial and/or noncustodial parent.¹⁴

3- Incentive Payments

Federal incentive payments are designed to encourage States to operate efficient, cost-effective child support programs

A new incentive-funding scheme for child support enforcement will be phased in, beginning in fiscal year 2000.¹⁵ New performance measures, developed by OCSE, in consultation with State IV-D Directors, in response to law enacted by Congress in 1996, developed base incentives on the program's success in achieving a number of goals, in addition to its ability to provide services in a cost-effective manner.¹⁶ Incentive payments are tied to the rates of paternity establishment, order establishment, collection of current child support payments, and collection of arrears, as well as the amount of support collected for each dollar spent.¹⁷

The Federal government provided incentive payments totaling over $411 million to State child support enforcement programs in fiscal 1997. Incentive payments will be capped at $422 million in fiscal year 2000, and gradually increase to $483 million in fiscal year 2008.¹⁸ States must reinvest the full amount of Federal incentive payments in their child support programs.¹⁹ Incentive payments, whose performance measures mirror program goals, should encourage states to improve their child support programs and comply with Congressional goals.

Policy Issues Related to IV-D Funding

As noted above, the Federal government provides 66 percent of the funding for most IV-D program activities, including those related to medical support. In the past, when Congress wanted to encourage activity in a given area, it offered FFP at a higher level. For example, Congress provided enhanced FFP to encourage paternity establishment and automation. The Working Group believes that Congress should provide enhanced FFP at the 90 percent rate for medical child support activities to encourage states to more aggressively pursue medical support enforcement.

At the current time, States are faced with new initiatives and competing priorities to medical child support enforcement activities at the State level. While recognizing the importance of medical support, IV-D agencies are fully occupied. Agencies report being occupied with implementing new mandates and the critical role child support collections play in welfare reform. In a world of limited TANF benefits, full and timely collection of child support is a lynchpin, critical to the economic self-sufficiency of millions of single parent families.

Both CSPIA and the Working Group's recommendations require State child support agencies to assume new responsibilities. The Working Group's recommendations and existing Federal legislation require major systems changes for IV-D agencies, which are still struggling with PRWORA's automation requirements. Some examples of the additional demands for automation and for casework services that medical child support enforcement-under current law and as proposed in this Report-places on IV-D agencies include:

Implementation of the NMSN
Implementation of PRWORA's requirement that every child support order include provision for health care coverage
Implementation of new automated systems capable of exchanging information with employers and family health coverage plans
Implementation of additional Working Group recommendations, including recommendations that child support agencies make a presumptive determination of eligibility for Medicaid and help children obtain public health care coverage when they do not have access to private insurance
Implementation of the requirement that child support agencies consider health care coverage available to the custodial parent

The Working Group concluded that child support enforcement agencies cannot be expected to fulfill these critical mandates unless they are able to hire and train adequate staff and fund the enhancement of systems. Congressional authorization of additional funding for medical support is essential to improved IV-D performance in this area.

The funds that State and Federal governments devote to medical child support will be key to improving medical support enforcement, and implementing reforms. Enhanced FFP and a new incentive measure for the IV-D program will provide important sources of funding to help State child support agencies ensure that every child who is eligible for child support services has comprehensive health care coverage.

Enhanced Federal Financial Participation (FFP)

Congress has successfully used enhanced funding to "jump start" State implementation of new child support activities. For example, in the Family Support Act of 1988 Congress provided 90 percent enhanced FFP to defray laboratory costs incurred in establishing paternity.²⁰ This enhanced FFP contributed to dramatic increases in the number of IV-D cases where paternity was established.²¹

Enhanced Federal funding for establishing and improving State automated child support systems similarly made it possible for States to comply with requirements in the Family Support Act and PRWORA that they create highly automated child support enforcement systems.²² These systems are designed to make it faster and easier to establish and enforce child support orders and to distribute the payments received. When completed by all jurisdictions, they are expected to make the child support program more efficient and cost-effective.

As with these priority areas, enhanced FFP would highlight the importance of medical support and give the states the resources they need to implement CSPIA'S medical support requirements and the Working Group's recommendations. However, the Working Group recognizes that the Federal government cannot be asked to provide an open-ended commitment to funding medical support activities. States will need to assume greater responsibility for funding medical support. Thus, the Working Group recommends that Congress offer an enhanced 90 percent FFP rate for medical support activities but only for a limited 5-year period.

By offering this "carrot" and prioritizing IV-D medical support activities, Congress would use the power of the purse to ensure prompt and effective implementation of Title IV-D's medical support provisions and the Working Group's recommendations. This funding could be capped in order to limit the total amount of Federal funding earmarked for enhanced medical support and to help Congress predict the cost of implementing these provisions.

Recommendation 65 (Federal Legislation)
Congress should amend Federal law to provide for 90 percent enhanced Federal Financial Participation to State IV-D agencies for a five-year period to facilitate the implementation of the Title IV-D medical support requirements, contained in §401 of CSPIA 1998, and additional Federal requirements that result from the Working Group's recommendations. This funding may be capped.

Medical Support Performance Incentive Measure

In 1998, Congress established a new incentive payment scheme, mandated by CSPIA, which rewards performance in five areas.²³ At the same time, it capped the total amount of Federal incentive payments that would be made available to the States. The new system is currently being phased in, and will be fully implemented in FY 2002.²⁴

CSPIA also authorized creation of a sixth incentive measure, medical support enforcement.²⁵ This legislation required that the medical support performance measure be incorporated, in a revenue neutral manner, into the performance measures already established by Pub. L. 105-200. Once a medical support performance measure is adopted, medical support will be added to the list of activities for which states can receive incentive payments. However, States will still be competing for the same pot of money, which will be divided based on six factors rather than five.

CSPIA authorized the Secretary of HHS to develop a medical support incentive measure in consultation with State IV-D agency directors and representatives of children eligible to receive child support. The Medical Support Incentive Work Group began meeting in 1998. The statute requires that the incentive measure be based on the States' effectiveness in establishing and enforcing medical child support obligations. The Medical Incentive Support Work Group's final report to Congress is due on June 1, 2001.²⁶

Developing a medical support performance measure has proven a difficult task. The Medical Support Incentive Work Group's June 23, 1999 preliminary report to Congress states that the primary obstacle is the lack of reliable data upon which a measure can be based.²⁷ At last review by OCSE's audit division, only seven states could provide medical support data-and that data was considered to have limited reliability. This problem will be addressed through the new State IV-D reporting requirements,²⁸ but it will be at least a year before this process provides enough reliable and accurate data to design a truly useful performance indicator.

The Medical Support Incentive Work Group also expressed concern about the benefits of implementing a performance measure before states actually have adequate tools to improve their performance in this area. The NMSN, which will be key to improving medical support enforcement, will not actually be finalized and in broad use until FY 2002. For all of these reasons, the Medical Support Incentive Work Group recommended postponing implementation of the performance measure.

..... it's absolutely critical that at some point down the line, when the dust is settled on what the IV-D program's responsibilities are in terms of medical support, that we have an appropriate performance measure and we evaluate our progress.

~Lee Sapienza, Chief of Policy and Planning, Office of Child Support Enforcement, New York

In the interim, the Medical Support Incentive Work Group will be reviewing State-reported data regarding the number of cases in which: (1) medical support (cash and/or family health coverage) is ordered; (2) health care coverage is ordered; or (3) health care coverage is provided as ordered. In addition, the Medical Support Incentive Work Group contemplates a system which rewards continuous improvement, as well as current performance. Given the historic inattention to medical support issues, it is important to measure improvement, so that States with poor records can hope to earn incentives by significant annual improvement.

The Working Group concurs with the Medical Support Incentive Work Group's judgment that a performance measure should be developed but that data is not yet available to do so. The Working Group also agrees that the Medical Support Incentive Work Group should develop measures that reward the full range of medical support activities, including securing and enforcing health care coverage in IV-D cases, contributions toward premiums, and other health care reimbursement. Consistent with the Decision Matrix adopted by the Working Group, the Medical Support Incentive Work Group should devise a measure that rewards States for enrolling children in the most appropriate coverage, whether that is private or public. The incentive payment scheme should reward States which screen cases and follow through, so that children who cannot obtain private coverage are enrolled in public coverage, such as Medicaid or SCHIP.

The Working Group supports the idea of a standard that sets minimum acceptable performance levels and rewards significant improvement over that level. Finally, the Working Group also agrees with the Medical Support Incentive Work Group's finding that the states need to have access to the tools needed to improve their performance, before Congress establishes a performance measure.

A number of the recommendations made in this Report require changes in Federal law and regulations, which will occur over a period of time. Furthermore, the results of demonstration projects suggested in Chapter 8 are designed to provide additional insight into ways to further improve medical support enforcement. These results are several years away. For these reasons, the Working Group recommends that the medical support incentive payment system be developed and implemented in conjunction with other funding recommendations.

Recommendation 66 (Federal Legislation)
Congress should amend Federal law to require that the medical support incentive measure is developed in conjunction with the implementation of CSPIA 1998 §401 requirements and additional requirements that may be imposed by law or regulation, based on the recommendations of the Working Group. The measure should also take into account the findings of the research and demonstration grants undertaken by States and funded by HHS.

Members debated whether a proposed five-year delay in implementing the performance measure for medical support was a de facto approval of putting off improvements in medical support enforcement. The Working Group also struggled with counterbalancing concerns that the automated reporting system does not adequately reflect medical support activity while counting such activities without automation would distract from the provision of direct service to the children.

With the need for the development of outcome measurements-not only for the existing requirements but also for any that are implemented due to the Working Group's recommendations-delay was unavoidable. But the consensus was that a full 5-year delay for development and implementation of this incentive measure was untenable. The consensus reached balances the practical considerations described above with the need to send the message that medical support activities must happen sooner-not later.

The Working Group does not favor indefinite postponement of State accountability for improved medical support enforcement. Indeed, some members of the Working Group felt that postponement of the medical support performance incentive measure might give states an undeserved reprieve, since medical support requirements are not new to the IV-D agencies.²⁹ A number of Working Group members found the lack of data disturbing in light of existing statutory requirements. They feared that postponing implementation of a medical support incentive system would reward states that have long ignored medical support.

Others observed that postponing implementation of the medical support incentive measure could send the wrong signal to State child support agencies. The Working Group's decision to develop and implement this incentive measure in conjunction with other efforts should not be interpreted as a decision to downgrade the importance of medical support in the child support enforcement program. The Working Group wants to stress that the period of enhanced FFP should be used as a time of preparation for and focus on making medical support a core child support activity. Otherwise, children could needlessly be denied health care coverage, at great cost to private insurers, public health care programs, and most importantly the children themselves.

Ultimately, the Working Group concluded that enhanced FFP for a limited time period would focus states' attention on medical support, and generate increased State activity in the medical support area. This funding would expire after five years. Thus, it seemed appropriate to propose a plan in which the medical support incentive payment would be phased in and become fully operational as enhanced Federal funding ends. To achieve this, the medical support incentive measure must be developed as quickly as possible.

The Working Group recommends that the Medical Support Incentive Work Group continue its work and develop its recommendations, so that the medical support performance indicator will be published in final form within three years of the date enhanced FFP becomes available. At that point, OCSE should begin gathering the data needed to assess State performance, so that the medical support performance indicator will be fully implemented into the incentive payment system when the enhanced Federal funding expires at the end of the five-year period.

Under this approach, CSPIA's requirements will be fully implemented, and recommendations of the Working Group should be in place before the incentive payment becomes fully operational. In the meantime, enhanced FFP will make it possible for states to fund more concerted efforts in the medical support area. When enhanced funding ends, the incentive payments system will reward states for continued, focused, medical support activity, and they will have the tools necessary to ensure that medical support is consistently ordered and enforced.

Recommendation 67 (Federal Legislation)
Congress should amend Federal law to require HHS to publish the medical support performance incentive measure in final form within three years of the date the 90 percent FFP goes into effect. Implementation of the medical support performance incentive measure shall begin upon publication, including the collection and submission by the States to OCSE of all data necessary to calculate the measure. The medical support performance incentive measure shall be included in the calculation of incentive payments due States beginning 2 years after publication. This five-year time period shall run concurrent with that set forth in Recommendation 65 (Federal Legislation).

Cross-Program Funding

Most Working Group members agree that medical support efforts of the IV-D agencies have resulted in savings to the Medicaid program. Identifying the savings to the Medicaid program (and the cost avoidance to SCHIPs) when the IV-D agency obtains coverage on behalf of Medicaid and SCHIP recipients is an important and complex matter that the Working Group strongly believe merits further study.

So that IV-D agencies benefit from their efforts to obtain third-party private health insurance, State Medicaid agencies could share these cost savings with the IV-D agencies. New York State, for example, estimates that for every Medicaid child who has private health care coverage available, there is a potential Medicaid savings of $666 per year.³⁰

Since receipt of such savings could be a strong incentive to the IV-D agency to enroll children in private health insurance, the medical support incentive measure could be used to better identify these savings, with the IV-D, Medicaid, and SCHIP agencies collaborating in establishing the appropriate reporting requirements.

The Working Group identified several complications in the measurement and distribution of such savings. First, much of the Medicaid savings realized through medical child support collection will be through cost avoidance instead of cost recovery. Expenses that are cost avoided do not show up in accounts receivable as a specific amount. Not only is it very difficult to determine accurately the exact amount of Medicaid spending that has been cost avoided, but there is no "pot of money" in which cost-avoided funds reside.

“[W]e should explore the possibility of cross-program funding and … we should use that possibility as a vehicle for rewarding effective performance. It's very consistent with the whole of CSPIA,[so that] when IV-D agencies actually do good jobs in medical support enforcement, they benefit from cost-avoiding in the Medicaid program.”

~Ruth Bell Clark, National Child Support Association

Second, because IV-D agencies receive a higher rate of FFP than Medicaid agencies, a policy of direct cross funding from the Medicaid agency to the IV-D agency could result in an overall loss of State funds (as more of the savings would need to be returned to the Federal government).
Because of its potential and its complexity, the Working Group urges further study of this possibly useful practice.

Recommendation 68 (Research and Demonstration)
HHS should study the savings and cost avoidance to the Medicaid program when IV-D secures and enforces a medical child support order for private insurance for Medicaid-eligible children. HHS should also study alternate methodologies to supplement funding for the child support enforcement program based on such Medicaid program savings and avoided costs. If HHS does not have sufficient funds to meet the cost of such a study, it should seek an additional appropriation from Congress.

The implementation of CSPIA IV-D medical support requirements and the changing tide of health care coverage available to families both from private and public sources gives rise to a need for evaluation of the effectiveness of child support's involvement in medical support enforcement and the interface between programs. To that end, Chapter 8 sets forth areas where research and demonstration projects are required. Of particular relevance to cross-program funding is Recommendation 70. The Working Group urges Congress and the Executive branch to support such research and demonstration through appropriate funding.

Endnotes

[1] See Krueger, Ruth Gillie. “Analyzing American Social Policy: A Study of the Development of the Child Support Provisions of the Personal Responsibility and Work Opportunity Act of 1996 (PRWORA).” Dissertation presented to the University of Southern California School of Public Administration (December 1998); Committee on Ways and Means, U.S. House of Representatives, “The Child Support Enforcement Program: Policy and Practice.” U.S. Government Printing Office (December 5, 1989).

[2] U.S. Department of Health and Human Services, Administration of Children and Families, Office of Child Support Enforcement, Twenty-second Annual Report to Congress, Table 1. Financial for Five Consecutive Fiscal Years.

[3] Section 402a of the Social Security Act, 42 U.S.C. §402(a)(ii).

[4] Pub. L. 90-248.

[5] However, for the first five years of the program, FFP for non-AFDC cases was somewhat problematic. In 1980, financing for non-AFDC cases was made permanent.

[6] Pub. L. 93-647, 42 U.S.C. §651 et seq.

[7] This figure was reduced to 12 percent effective October 1, 1983. Pub. L. 96-178, Pub. L. 96-265, Pub. L. 96-272.

[8] Pub. L. 98-378.

[9] Pub. L. 100-465.

[10] 42 USC §658a. This new system is being phased in and will be fully operative in FY 2002.

[11] Pub. L. 105-200, § 401 112 Stat. 659 (1998).

[12] 42 U.S.C. §655(a) (1999); 45 C.F.R. 304.20 (1999).

[13] 42 U.S.C. §655(a) (1999); 45 C.F.R. 304.20 (1999).

[14] Fees received and costs recovered for non-TANF cases totaled $40,797,848, in fiscal year 1997, (Twenty-second Annual Report to Congress, Table 22).

[15] 42 U.S.C. §658a (1999).

[16] 42 U.S.C. §658A (1999). This approach was endorsed by the U.S. Commission on Interstate Child Support Enforcement in its Report to Congress, “Supporting Our Children, a Blueprint for Reform” (1992), 288.

[17] 42 U.S.C. §658a(b)(4). The incentive measures are as follows:

a) Paternity Establishment: The ratio of children in the State or IV8209D caseload who were born out of wedlock and have paternity established compared to the total number of children in the State or IV8209D caseload who were born out of wedlock in the prior year.

b) Order Establishment: The percentage of IV8209D cases with support orders.

c) Collection Rate: The IV8209D collection rate for current support due.

d) Collection of Arrearage: The percent of IV8209D arrearage cases paying.

e) Expenditures:Collections Ratio: The total dollars collected per dollar of expenditures.

[18] 42 U.S.C. §658a (1999).

[19] 42 U.S.C. §658a(f)(1999).

[20] 42 U.S.C. §655(a)(1)(C) (1999).

[21] Office of Child Support Enforcement, Twenty-second Annual Report to Congress and Twenty-first Annual Report to Congress.

[22] 42 U.S.C. §654(16), 42 U.S.C. §655(a)(1)(1999).

[23] 42 U.S.C. §658a (1999).

[24] Id.

[25] Pub. L. 105-200 §201(d)(6)(E), 112 Stat. 657 (1998), codified at 42 U.S.C. §658a, note 2 (1999).

[26] Id.

[27] HHS, Report to Congress on the Development of a Medical Support Incentive for the Child Support Enforcement Program (June 23, 1999), 1.

[28] HHS, Report to Congress on the Development of a Medical Support Incentive for the Child Support Enforcement Program (1999), 2.

[29] Since the 1980s child support agencies have been required to enforce medical support. See Pub. L. 98-378, the Child Support Amendments of 1984.

[30] New York State Department of Health, Office of Medicaid Management.