NCSL LegisBrief: TEFRA Medicaid Option for Children with Mental Illness

NCSL LegisBrief

Briefing Papers On the Important Issues of the Day

TEFRA Medicaid Option for Children with Mental Illness

By Johanna Keely

March 2003
Volume 11, Number 13

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Parents of severely mentally ill or emotionally disturbed children are finding it increasingly difficult to pay for their care. Private health insurance often will not pay for all the needed services; out-of-pocket expenses are too high for families; and many parents make too much to qualify for Medicaid. As a result, some parents must decide between giving the state custody of their children in order to get them the care they need or having their children go without necessary mental health services.

In response, some states have passed legislation creating ways for children to be treated without turning them over to the juvenile justice or foster care systems. States also have another option under Medicaid to cover home- and community-based services for children with severe physical and mental disabilities. If children are eligible for Medicaid institutional services, but can be cared for in the home, states may use the Tax Equity and Financial Responsibility Act of 1982 (TEFRA) option.

The TEFRA Medicaid Option. The act allows states to offer children with disabilities, who otherwise would not qualify due to family income, home- and community-based services instead of institutional placement. TEFRA is also referred to as the Katie Beckett option, named after the child whose situation inspired the law. Eligibility requirements include:

1. The child must have a disability as defined in federal disability rules (Social Security income or Social Security disability income).
2. The child must need the level of care normally provided in a medical institution.
3. Home care for the child must be appropriate.
4. The cost of home care must not exceed the cost of the alternative institutional care.

Once a child is deemed eligible, all other state Medicaid rules apply. He or she is entitled to all community-based clinical, rehabilitative and case management services. Medicaid serves as the last payer-if a family has private health insurance that covers a service, it must be billed first. In addition, the child must use providers who accept Medicaid coverage.

Costs. The cost of providing home- and community-based care is often less than that for those who enter state custody or are placed in institutions. There also are few children with severe mental or physical disabilities who qualify for care under TEFRA, thereby greatly reducing the potential increase in Medicaid enrollment. When using the option, states must assess the costs of institutional care and then determine whether a child requires that level. Only one state has studied the costs associated with TEFRA. Minnesota found that TEFRA children with mental health diagnoses were less expensive to treat than those with physical disabilities-$17,900 as compared with $43,000. Because Medicaid is the payer of last resort, average Medicaid costs were only $8,100 per child.

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Please view the Adobe Acrobat version for chart "The TEFRA Option Around the States"

State Action

Twenty states currently have elected the TEFRA option. But only 10 states have included children with mental or emotional disorders to qualify, according to the Bazelon Center for Mental Health Law. Federal law does not permit states to exclude children based on disability, but some states may be doing so inadvertently by the way they structure the option.

When setting policy for TEFRA, states must clarify the definition of a medical institution; define the level of care considered to be "normally provided" in these institutions; clarify how to decide that home care is appropriate; and explain how it will calculate that home care does not cost more than institutional care. How states define medical institution can limit who qualifies. If a psychiatric hospital is not included, some children will not qualify. If a state does not mention in outreach materials that children with mental or emotional disorders qualify for TEFRA, this may discourage families from applying.

Enrollment varies among states, ranging from 10 children in Michigan to 4,300 in Wisconsin. Children with mental or emotional disorders make up a small percentage of TEFRA enrollment. Generally, they are less than 21 percent of the population, with the exception of Vermont, where 52 percent of TEFRA children have mental or emotional disorders. As an alternative, three states have home and community-based waivers under Medicaid to cover services for children with mental or emotional disorders who otherwise might be in an institution.

Several states have done a lot to inform families in order to overcome potential barriers to enrollment. Specifically, states have provided information to family organizations; conducted training for community mental health workers and Medicaid eligibility workers; and distributed materials to pediatric offices, children's hospitals, county offices and other places where families go. Wisconsin has even designated regional Katie Beckett consultants to help families fill out applications.

Selected Reference

Bazelon Center for Mental Health Law. Avoiding Cruel Choices: A guide for policymakers and family organizations on Medicaid's role in preventing custody relinquishment. Washington, D.C., November 2002.

Contacts for More Information

Johanna Keely
NCSL-Washington, D.C.
(202) 624-3583
johanna.keely@ncsl.org

Rafael Semansky
Bazelon Center for Mental Health Law
(202) 467-5730
www.bazelon.org

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