Maximize Federal Funding for Child Welfare Programs The Department of Protective and Regulatory Services should classify children in the conservatorship of the State of Texas and placed in the homes of relatives as "children in foster care," and recover the full amount of federal funds available for non-recurring adoption expenses. Background The Department of Protective and Regulatory Services (DPRS) administers Texas' foster care and adoption assistance program, many elements of which are funded under Title IV-E; Title IV-A Emergency Assistance (EA), Title XIX (Medicaid) and Title XX of the federal Social Security Act. The federal government provides matching funds for three types of costs associated with out-of-home placement programs under Title IV-E: administrative costs, claims for maintenance and ongoing service costs, and training costs. Maintenance payments are reimbursed at the same federal financial participation (FFP) rate as Medicaid, about 64 percent in Texas. Administrative costs are reimbursed at 50 percent and training costs at 75 percent.1 In 1993's Against the Grain, TPR recommended that DPRS enlist a contractor to take on an agencywide federal funds maximization effort on a no-risk, contingency basis. This recommendation was incorporated into the current biennial appropriations bill for $60 million in general revenue savings. A fixed-price contract was awarded by DPRS in 1993, and the contractor has worked with the agency to implement federal revenue maximization efforts in many programs. As a result, DPRS has made a significant move to maximize federal funds and estimated $84 million would be achieved by the end of the current biennium. Case Management for Children in Protective Services and Foster Care The terms of the Medicaid administrative matching program allow funds to be claimed without the specific case-by-case documentation required under Medicaid-targeted case management. Time studies are used to report and allocate costs to populations served for most claimable activities. For Medicaid administrative matching, DPRS surveys children and adult protective services specialists each quarter, recording their activities at each of about 5,000 individual "moments." Each task recorded is assigned a funding source, and the results are applied to the actual costs of a set of program account codes, or cost centers. Federally reimbursable administrative claims are based upon the percentage of time workers devote to the tasks associated with operation of the child welfare program for its Medicaid- eligible clients. Under the Texas Medicaid Plan, children under 19 years of age are automatically eligible for Medicaid if they are in family foster homes licensed or certified by the state. Children in the conservatorship of the state but placed in the homes of relatives are not classified as children in foster care; relatives do not receive funding from the state for health care expenses incurred for the care of the child. Enrollment in Medicaid is the responsibility of the relative under whose care the child is placed. In DPRS's current cost allocation plan, 22.9 percent of the administrative costs for case management services are for children in substitute care who are not eligible for Medicaid or preplacement services under Title IV-E; these administrative costs are totally funded by the state. Texas meets Medicaid matching requirements for administrative funding associated with the placement of foster children through current expenditures for DPRS caseworkers' supervision. Although all other requirements are met, children placed in the homes of relatives are not classified as foster children because the expenses associated with their placement are not covered by Medicaid. In sum, Texas continues to pay all the costs for children receiving case management services in the home because many of these children are not eligible for Medicaid, Title IV-E or EA maintenance assistance benefits. Non-recurring Adoption Expenses Under the Title IV-E adoption assistance program, funds expended by states under an adoption assistance agreement often include reimbursements or direct payments for non- recurring adoption expenses. Non-recurring adoption expenses typically are costs incurred by or on behalf of adoptive parents that are not otherwise reimbursed from other sources. These expenses include reasonable and necessary adoption fees, court costs, attorney fees and other expenses that are directly related to the legal adoption of a child with special needs. Federal financial participation is available for costs up to $2,000 in each adoption proceeding. Since July 1, 1992, Texas authorities have reported a total of $825,398 for non-recurring adoption expenses for children with special needs, and have claimed federal financial participation at the rate of 50 percent, or $412,700.2 The federal law appears to explicitly state that non- recurring adoption expenses a state incurs are to be treated in the same manner as eligible expenses for short-term training of foster or adoptive parents and staff members. Therefore, Texas should have claimed a federal financial participation rate of 75 percent for all non-recurring adoption expenses not exceeding the $2,000 per case limit. Federal regulations, however, conflict with the underlying federal law stating that "federal reimbursement is available at a 50 percent matching rate, for state expenditures up to $2,000, for any adoptive placement."3 DPRS has claimed federal financial participation in the costs of its non-recurring adoption expenses, yet it appears the participation was claimed at the lower rate, and understated by $206,351 during the last eight quarters. Minnesota and Rhode Island have both been alerted to the conflict between the underlying statute and the regulation, and are in the process of seeking retroactive federal financial participation for the incremental difference between the 50 percent and the 75 percent matching rates.4 Recommendations A. The Department of Protective and Regulatory Services (DPRS) should increase federal funding of case management for children in protective services and foster care by classifying children in the conservatorship of the state and placed in homes of relatives as "children in foster care," thereby making them eligible for Medicaid. In addition, DPRS should amend its time study to identify costs incurred on behalf of children when a case plan clearly indicates that foster care is the planned arrangement for the child. This is not intended to make these children eligible for foster care payments. B. DPRS should recover retroactive and ongoing funds for non-recurring adoption expenses. DPRS should immediately begin claiming federal financial participation under Title IV-E adoption assistance for non- recurring expenses at the 75 percent matching rate. When such costs include charges from state attorneys and state courts, those fees should be inclusive, with all overhead, and similarly claimed at the 75 percent matching rate. DPRS should file an adjustment to prior quarterly claims and seek retroactive federal financial participation for the incremental difference for all quarters in which non- recurring adoption expenses had been identified as a legitimate Title IV-E expense. A waiver should be sought from the two-year limitation on the period in which certain claims for federal financial participation must be filed, as permitted under 42 U.S.C. 1320 b-2 (b). If the waiver request is denied, officials should exhaust all administrative remedies and seek judicial review of the adverse determination to obtain a court order, reducing the claim to judgment and mandating retroactive payment as provided under 42 U.S.C. 1320 b-2 (a). C. State agencies should be encouraged to contract with a consultant experienced in federal revenue maximization on a no-risk, contingency basis. In addition, the Legislature should realign incentive structures so that state agencies can retain a portion of recovered non-state funds. Implications Classifying children in the conservatorship of the state who are placed in the homes of relatives as "children in foster care" would make them eligible for Medicaid, while the state would be able to receive matching federal funds for associated administrative expenses. The Medicaid requirement for matching state funding would be met by the state expenditures associated with the DPRS caseworker's supervision of the placed child. This approach would allow the state to extend Medicaid eligibility to these children; the state would be required to pick up the additional costs associated with any medical services they receive. By claiming federal financial participation under Title IV-E adoption assistance for non-recurring expenses at the 75 percent matching rate, the state would be taking full advantage of federal funds available for this program. State agencies should be encouraged to use contingency contracts and realign incentive structures to retain a portion of recovered non-state funds. This would minimize the state's risk from federal deferrals and disallowances, and provide opportunities to pursue aggressive, time- intensive revenue recovery initiatives without the expenditures related to a detailed research and development effort. Experiences in other states such as Massachusetts have been extremely positive and underscore the financial benefit of incentives for state agencies and their contractors. Fiscal Impact By recognizing children in state conservatorship and placed in homes of relatives as children in foster care, a total of more than 267 time "moments" now attributed to the state's costs would be moved to Medicaid and Title IV-E. By applying the proposed cost allocation amendment to actual expenditures for the quarter ending June 30, 1994, the net federal participation could be increased from $31.1 million to $40.4 million annually. The cost of additional Medicaid coverage for services provided to children in foster care is estimated at $1 million annually. For non-recurring adoption expenses, the fiscal impact would be an immediate prior-period adjustment of $206,351 for a retroactive, one-time recovery of net additional Title IV-E funds for the eight prior quarters. Not included in this estimate is the one-time fiscal impact of filing a retroactive claim dating back to the time Texas began filing these claims, which could be as high as $1.25 million. In addition, the state immediately should begin claiming at the higher rate for current quarter periods. By claiming at the higher rate, the state could expect to receive an additional $125,000 annually. Total savings as a result of implementing these recommendations would be $37.9 million over the next five years. To achieve the identified savings, the appropriation to DPRS would need to be reduced by the amounts indicated in the table. General revenue funds of $380,000 per year for Medicaid costs for these children should be added to the appropriation for the Texas Department of Health. DPRS would need to fund from Title XX about $13.4 million in services previously funded by general revenue funds (but not being used for federal matching). A portion of general revenue would be used as match under Title IV-E with the remaining $8.4 million per year as savings. Savings for the first year is reduced to allow for a period to make this change. Savings to the Fiscal General Revenue Change Year Fund in FTEs 1996 $4,004,000 0 1997 8,470,000 0 1998 8,470,000 0 1999 8,470,000 0 2000 8,470,000 0 1 42 U.S.C. 674 (a). 2 Texas Department of Protective and Regulatory Services, State Quarterly Report of Expenditures, Part I and II, Quarters Ending September 30, 1992 through June 30, 1994. (Computer printout.) 3 45 C.F.R. 1356.41 (f) (1). 4 Interviews with Lyle L. Koenig, Minnesota Department of Human Services, and Timothy Dutra, Rhode Island Department of Children and Their Families, September 1994. -- END --