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    Medicaid Birth Cost Recovery: New Rules Affect Unmarried Parents

    Lawyers who work with low-income clients can make a meaningful difference by being aware of opportunities to challenge or reduce Medicaid birth cost judgments.

    Richard Lavigne

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    During the past four decades, the number of unmarried parents in America has increased fourfold.1 Over that time, changing attitudes toward marriage have contributed to a rise in the percentage of unmarried parents who are cohabiting with a partner. Today, more than one-third of unmarried parents living with a child also live with a partner.2 Cohabiting unmarried parents tend to be younger and less educated and to have lower household incomes than married parents.3 Lower household incomes, combined with more generous Medicaid eligibility policies for pregnant women, increase the likelihood that medical expenses for births to unmarried cohabiting parents will be covered by Medicaid.

    In Wisconsin, state law allows the government to recoup a portion of those birth expenses from unmarried fathers. As a consequence, many unmarried couples are exposed to birth cost recovery orders in paternity proceedings. Regardless of whether ongoing child support obligations are imposed, these couples may enter into parenthood bearing an instant burden of support arrearages.

    Fortunately, recent changes to Wisconsin’s medical support rules offer a new opportunity to mitigate debt burdens for families receiving Medicaid or BadgerCare Plus benefits. A revision to Wis. Admin. Code section DCF 150.05 advises child support agencies that birth cost orders should not be sought in paternity cases involving cohabiting parents.

    Overview of Medicaid Birth Cost Recovery

    Wisconsin stands among a small minority of states that interpret the third-party liability provisions of federal Medicaid law4 to impose direct liability on unmarried or absent fathers for costs of pregnancy and childbirth paid by the state’s Medicaid program. Other states, such as Minnesota, have largely discontinued Medicaid birth cost recovery efforts over concerns that the policy adversely affects children. Idaho discontinued its birth cost recovery program after a trial court held that the practice violated constitutional equal-protection guarantees.5

    Richard Lavigneorg rlavigne safetyweb Richard Lavigne, U.W. 2007, is the Managing Attorney for ABC for Health Inc., a Madison based nonprofit organization dedicated to ensuring access to health care for Wisconsin families and children with special health care needs.

    Wisconsin, by comparison, has been described as having “the strictest birth-cost recovery policy in the nation”6 and remains “one of the two most aggressive” states collecting Medicaid birth costs.7 From 2011 to 2016, Wisconsin child support agencies collected nearly $106 million in Medicaid birth cost judgments from affected fathers.8 Federal law authorizes incentive payments to county child support agencies equal to 15 percent of amounts collected, with the remainder going to the state and federal governments as reimbursement of Medicaid program expenses.9

    Medicaid birth cost judgments arise in the context of paternity actions. Under Wisconsin law, every paternity judgment must include “[a]n order establishing the amount of the father’s obligation to pay or contribute to the reasonable expenses of the mother’s pregnancy and the child’s birth.”10 The state becomes a “real party in interest” to a paternity action whenever a parent has requested child support assistance or the parent or child has requested or received certain types of public benefits.11

    As a condition of eligibility for Medicaid benefits, applicants must assign to the state “any rights to medical support or other payment of medical expenses from any other person.”12 Department of Health Services (DHS) policy instructs regional Medicaid agencies to refer cases to child support agencies upon receipt of an application for Medicaid or BadgerCare benefits (or the addition of a new child to an existing Medicaid case) for unmarried mothers, married mothers not living with their husbands, and cohabiting nonmarital parents when paternity has not been legally established.13

    According to agency policy, the appearance of the father’s name on a Wisconsin birth certificate should be treated as evidence that paternity has been legally established.14 This policy, however, does not appear to be consistently followed. As a result, cohabiting nonmarital parents have been subjected to birth cost judgments, even when the father’s income provides primary support for the household and the repayment of birth cost orders would directly reduce income available for the support of the mother and the child. A recent change to Wisconsin child support regulations seeks to address that specific situation.

    Birth Cost Rule Update

    Federal regulations require states receiving federal child support enforcement funding to review state child support guidelines at least once every four years.15 Wisconsin’s most recent child support guidelines advisory panel convened in February-August 2015. One of the outcomes of the panel’s discussions was a recommendation for the Department of Children and Families (DCF) to propose a rule protecting nonmarital co-parents against the loss of household income that results from Medicaid birth cost repayment orders. The proposed rule was submitted to the Legislative Council Clearinghouse in November 2016. In February 2018, Gov. Scott Walker approved the final rule, which took effect July 1, 2018.16 The text of the final rule adds the following language to Wis. Admin. Code section DCF 150.05(2)(a):

    “Recovery of birth costs is inappropriate in cases where the alleged father is a member of an intact family that includes the mother and the subject child at the time paternity or support is established, and the father’s income, if any, contributes to the support of the child.”

    Under Wis. Admin. Code section DCF 150.02(17), an intact family is “a family in which the child or children and the payer reside in the same household and the payer shares his or her income directly with the child or children and has a legal obligation to support the child or children.” That definition might cause some confusion as to whether a father is a member of an intact family, given that the definition of payer, under Wis. Admin. Code § DCF 150.02(24), is “the parent who incurs a legal obligation for child support as a result of a court order.” A father who establishes paternity by voluntary acknowledgment will not necessarily have incurred a support obligation as a result of a court order.

    Nonetheless, a properly filed statement acknowledging paternity should be deemed to “be of the same effect as a judgment” of paternity.17 Because a paternity judgment can generally be expected to establish a legal support obligation for both parents, even when no actual payment is currently required, a reasonable harmonization of the birth cost rules with the applicable definitions would recognize a father who voluntarily acknowledges paternity as a member of an intact household.

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    Medicaid Birth Cost Judgment Amounts

    Wisconsin law limits the amount of a birth cost judgment to “one-half of the total actual and reasonable pregnancy and birth expenses.”18 Although the law requires the issuance of a birth cost order in every paternity judgment, nothing in the law limits the court’s discretion to set the judgment amount at zero dollars. In practice, the DCF uses one of four methods to determine the amount it will seek in a Medicaid birth cost judgment:

    1. Five percent of the father’s monthly income multiplied by 36 months;

    2. For low-income fathers, a fixed amount based on income as a percentage of the federal poverty level;

    3. One-half the “regional average amount for birth costs”; or

    4. One-half the actual birth costs up to the full regional average amount.

    The first two methods are authorized by Administrative Code regulations with the low-income payment caps adjusted annually.19 The second two methods appear to be a product of agency-level policy.20 One-half the regional average birth cost appears to be the method most commonly pursued.

    Whatever method is proposed, an appropriate birth cost order should be based on the method that yields the lowest judgment amount.21 State law, Wis. Stat. section 49.45(19g)(c), also provides that when a mother is enrolled in a Medicaid HMO, as virtually all BadgerCare Plus members will be, the “birth expenses that may be recovered ... are the birth expenses incurred by the health maintenance organization.” Given the range of different amounts that may result from the application of available methodologies, lawyers representing fathers in paternity actions involving Medicaid birth cost claims can provide a valuable service by taking the time to investigate whether the method proposed results in the lowest judgment amount.

    The threshold inquiry should be whether the proposed judgment amount exceeds one-half the actual and reasonable expenses associated with pregnancy and childbirth. The second line of inquiry should examine whether a proposed birth cost judgment amount represents the lowest among the applicable methodologies. (See sidebar, “Determining Actual Birth Expenses.”)

    Determining Actual Birth Expenses

    For a mother enrolled as a fee-for-service (non-HMO) Medicaid or BadgerCare member, a good measure of actual expenses may be the amounts actually paid by the Medicaid program to health care providers. Those amounts may be determinable if the mother, or her authorized representative, contacts the appropriate income maintenance agency to request a copy of her claims history.22

    It is more challenging to determine the actual expenses of pregnancy and childbirth for Medicaid managed care members. Participating HMOs receive a per-member-per-month capitation fee to provide the majority of Medicaid covered services to each enrolled member.23 In addition, HMOs are paid a one-time “kick payment” for each covered maternity claim. Capitation fees and kick payment amounts are derived from actuarial analysis of prior years’ claims encounters, including reimbursements paid under Wisconsin’s Medicaid fee schedule and amounts paid directly by HMOs to service providers.

    Wisconsin’s 2018 rate schedule, for example, is based on projected expenses derived from 2015 and 2016 claims data. Rates vary across six different regions of the state and are adjusted to allow for profit margin and administrative expenses. These regional rates represent the “regional average amount for birth costs” frequently relied on as the basis of the proposed amount for birth cost orders. One may justifiably question how these projected rates reflect either the actual and reasonable expenses associated with any given childbirth or the expenses actually incurred by the HMO. In some cases, the regional average amount might exceed the amounts billed to the HMO by hospitals and other health care providers or paid by the HMO to service providers.

    For example, using the five percent of income methodology, the birth cost judgment amount for a father making only $20,000 per year would be $3,000. That amount is greater than one-half the regional average amount for birth costs in four out of the six rate regions. Conversely, for a father making $24,000 per year, using one-half the regional average birth cost amount for any of the six rate regions would result in a smaller judgment amount than the five percent of income method.

    History and Implications of Medicaid Birth Cost Recovery

    Opponents of Medicaid birth cost recovery have long expressed concerns about the unintended consequences of the policy. Chief among those concerns are the financial effects on low-income families as well as indications that the policies cause some mothers to forego Medicaid enrollment and lose access to adequate prenatal care, potentially increasing the likelihood of adverse maternal and child health outcomes.

    The financial effects of Medicaid birth cost repayment orders on cohabiting unmarried parents are readily apparent, but research also suggests that birth cost recovery orders can be financially detrimental to mothers and fathers who do not cohabit. Studies in Wisconsin demonstrate a connection between birth cost orders and reduced compliance with traditional child support obligations among fathers outside the formal employment sector – those not subject to compulsory wage garnishment.

    Compounding that problem, research further indicates that birth cost orders reduce fathers’ participation in the formal employment sector, particularly among younger fathers in the process of establishing an early presence in the labor market. A corresponding study shows birth cost orders assessed against 74 percent of fathers with children eligible for W-2 program benefits.24

    Taken together, the evidence suggests that birth cost recovery orders are disproportionately assessed against lower income fathers with the least likelihood of access to employer-sponsored health insurance, and that the negative economic and child support compliance consequences disproportionately affect lower income mothers and children.

    Simple logic dictates that Medicaid birth cost recovery policies likely contribute to Wisconsin having the nation’s highest infant mortality rates for African-American babies and the nation’s largest gap in mortality rates between white and black infants.

    Disparate Impact. Demographic data further support the conclusion that Medicaid birth cost recovery disproportionately affects Wisconsin’s most vulnerable families, including members of racial minority groups and residents of economically challenged rural areas. In Milwaukee County, for example, more than half of all births in 2015 were to mothers enrolled in Medicaid. Whereas only 22 percent of births to white mothers were covered by Medicaid, the rate jumps to 74 percent and 77 percent, respectively, for births to Hispanic and African-American mothers. Among all Medicaid-covered births in Milwaukee County in 2015, 78 percent were to unmarried mothers.

    The disparate effects of Medicaid birth cost recovery are not restricted to Milwaukee. In 2015, the rates of Medicaid coverage for childbirth in Ashland, Barron, Marinette, and Rock Counties were 54 percent, 44 percent, 42 percent, and 45 percent, respectively. The ratio of Medicaid births to unmarried mothers in those counties ranged from a low of 51 percent (Ashland) to a high of 73 percent (Rock).

    By comparison, in relatively affluent Dane County, only 22 percent of all births in 2015 were to mothers enrolled in Medicaid. Regardless, racial disparities continued to factor prominently, with 63 percent of births to Hispanic mothers and 81 percent of births to African-American mothers involving Medicaid. Altogether, 70 percent of Dane County births covered by Medicaid were to unmarried mothers.25 At the time, roughly 25 percent of Hispanic households and 40 percent of African-American households in the city of Madison met Census Bureau criteria for income below the poverty line.26

    Medicaid birth cost recovery disproportionately affects Wisconsin’s most vulnerable families, including members of racial minority groups and residents of economically challenged rural areas.

    Effects on Prenatal Care. Concerns about deterrent effects on low-income mothers’ access to prenatal care arose soon after the passage of the Deficit Reduction Act of 1984, which included provisions requiring custodial parents to assign medical support rights, “including any rights to medical support arising out of a divorce decree or child support order,” to the state as a condition of Medicaid eligibility.27 In 1990, Congress responded to those concerns by eliminating Medicaid child support cooperation requirements for women during pregnancy and for 60 days after the end of pregnancy.28 Despite acknowledging that child support cooperation requirements presented “a potential barrier to prenatal care for high-risk, low income women that would most benefit from it,”29 Congress did not specifically address Medicaid birth cost recovery, leaving the door open for some states to continue to engage in the practice.

    In 2000, a Medical Child Support Working Group, jointly established by the Secretaries of the Department of Labor and the Department of Health and Human Services, concluded that Congress had expressed “a clear public policy that recognized that the value of encouraging mothers to seek and receive prenatal care far outweighed the potential cost recoupment from non-marital fathers.”30

    Finding evidence that Medicaid birth cost recovery causes mothers to forego prenatal care, discourages voluntary establishment of paternity, and “reimburses the State at the expense of additional support that might go to the child,” the working group recommended that state child support enforcement agencies “not seek reimbursement of Medicaid-covered birthing costs.”31 The federal Office of Child Support Enforcement failed to formally adopt the working group’s recommendations.

    In the same year, a legislative attempt to prohibit Medicaid birth cost recovery passed Congress by a nearly unanimous vote but proceeded to languish in the hands of the Senate Committee on Finance.32 Seven years later, another attempt to end Medicaid birth cost recovery would be made by then-Sen. Barack Obama with cosponsorship from Sen. Evan Bayh, but both the Senate bill and a companion House bill failed to pass.33

    Despite a lack of quantitative research, anecdotal evidence from health care professionals and Medicaid program staff tends to validate concerns about prenatal care deterrence.34 Although more research is needed, simple logic dictates that Medicaid birth cost recovery policies likely contribute to Wisconsin having the nation’s highest infant mortality rates for African-American babies and the nation’s largest gap in mortality rates between white and black infants.35

    That association has been acknowledged by the public health departments for Madison and Dane County.36 In recent years, the Milwaukee Health Department has explicitly recommended the repeal of Medicaid birth cost recovery as a strategy to improve birth outcomes.37 Nonetheless, Dane and Milwaukee counties aggressively pursue Medicaid birth cost judgments. In 2015, Milwaukee County collected nearly $500,000 in birth costs, more than double Dane County’s total collections of $212,525.38

    Effects on Fathers. Proponents of Medicaid birth cost recovery assert that the policy holds fathers accountable for responsibilities related to the birth of their children and that the funds recovered play a significant role in supporting Wisconsin’s Medicaid and child support programs.39 (See sidebar, “Birth Cost Recovery and Medicaid Solvency.”) When it comes to fathers’ responsibilities, the sparse available evidence seems to indicate that birth cost judgments tend to have the effect opposite to promoting parental responsibility. The evidence suggests that birth cost judgments tend to reduce workforce participation, compliance with traditional child support obligations, and paternal engagement with the mother and the child.40

    Birth Cost Recovery and Medicaid Solvency

    It seems clear that birth cost recovery is far from crucial to the solvency of Wisconsin’s Medicaid programs. From each dollar recouped through birth cost judgments, county child support agencies receive a 15 percent incentive payment.41 The state’s Medicaid expenditures are reimbursed from the balance, and the remainder is returned to the federal government.42 In 2017, Wisconsin’s total Medicaid expenditures amounted to roughly $8.2 billion.43

    Federal matching funds accounted for 58.5 percent of total expenditures,44 leaving the state’s share at about $3.4 billion. Statewide birth cost collections, in total, amounted to about $15.2 million.45 Just short of $2.3 million from those collections would have gone to child support agencies. Another $6.6 million would have been returned to the federal government, leaving about $6.3 million to reimburse state Medicaid expenditures.

    Thus, birth cost reimbursements to Wisconsin’s Medicaid funding pool in 2017 amounted to less than two-tenths of one percent of total state Medicaid expenditures. At the end of 2018, the DHS projected a state Medicaid budget surplus of nearly $213 million for the 2017 -2019 biennium.46

    Conclusion

    Wisconsin’s Medicaid birth cost recovery policies can profoundly affect low-income families, who are among the least likely to have representation in paternity proceedings. Lawyers who work with low-income clients or are looking for pro bono opportunities can make a meaningful difference by being aware of opportunities to challenge or reduce Medicaid birth cost judgments.

    While the recent changes to Wis. Admin. Code section DCF 150.05 should help eliminate situations in which birth cost orders deplete income from intact nonmarital households, other approaches to help reduce the debt burden of birth cost orders might also mitigate adverse effects for custodial and noncustodial parents alike. Lawyers representing fathers in paternity actions should examine whether birth cost claims reasonably represent actual costs related to childbirth and whether caps on maximum judgment amounts for low-income fathers are properly applied.

    Reducing the financial impact of birth cost orders can help advance the goals of child support enforcement by increasing fathers’ likelihood and ability to comply with traditional support obligations.

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    Richard LavigneMy favorite part of Wisconsin runs along the south shore of Lake Superior in Ashland and Bayfield counties. In addition to the bounties of Lake Superior and the Apostle Islands, easy access to the Chequamegon National Forest and an abundance of inland lakes and rivers provides outstanding prospects for all types of outdoor recreation. The small communities along the lakeshore, apart from offering exceptional scenic beauty, also host a thriving local foods, arts, and music culture. Moreover, the close-knit community atmosphere affords resident attorneys a great opportunity to form collegial professional relationships and have a meaningful effect through community involvement. Just be prepared to make the most of a long, cold winter!

    org rlavigne safetyweb Richard Lavigne, ABC for Health Inc., Madison.

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    Endnotes

    1 Gretchen Livingston, The Changing Profile of Unmarried Parents, Pew Research Center, April 25, 2018.

    2 Id.

    3 Id.

    4 See, e.g., 42 U.S.C. § 1396a(25)(H).

    5 Idaho Dep’t of Health & Welfare v. Cua Barrios, No. CV-2014-7359 (Kootenai Cty. Dist. Ct. March 7, 2016).

    6 Emmanuel M. Ngui et al., Relationship of Paternity Status, Welfare Reform Period, and Racial/Ethnic Disparities in Infant Mortality, 9 Am. J. Men’s Health 350, 356 (2015).

    7 Thomas Schlenker et al., The Effect of Prenatal Support on Birth Outcomes in an Urban Midwestern County, 111 WMJ No. 6, 267, 272 (Dec. 2012); Meghan Pesko et al., Birth Cost Recovery and the Infant Mortality Puzzle, HealthWatch Wis. Reporter (Feb. 27, 2012).

    8 HealthWatch Wis., Birth Cost Recovery in Wisconsin: “It’s Not Child Support.”

    9 42 C.F.R. § 433.153.

    10 Wis. Stat. § 767.89(3).

    11 Wis. Stat. § 767.205(2).

    12 Wis. Stat. § 49.45(19)(a)

    13 Wis. Dept. of Health Services, BadgerCare Plus Eligibility Handbook § 5.1.2; Medicaid Eligibility Handbook § 8.1.3.

    14 Id.

    15 42 C.F.R. § 302.56(e).

    16 Wis. Admin. Reg., June 2018, No. 750B.

    17 Wis. Stat. § 767.805(1).

    18 Wis. Stat. § 767.89(3)(e).

    19 Wis. Admin. Code § DCF 150.05(2)(b).

    20 See, e.g., Wis. DCF, Your Guide to Repaying Birth Costs, Pub. No. DCF-P-DWSC11777 (May 2017).

    21 Wis. Admin. Code § DCF 150.05(2)(b).

    22 List of regional income maintenance agencies.

    23 Current capitation rate reports and regional projected birth expenses averages.

    24 Judi Bartfeld, Arrearages, Lying-in Orders, and Child Support Compliance among Fathers of W-2 Children in Wisconsin, U.W.-Madison Institute for Research on Poverty (Feb. 2005); Maria Cancian et al., Does Debt Discourage Employment and Payment of Child Support? Evidence from a Natural Experiment, U.W.-Madison Institute for Research on Poverty, Discussion Paper No. 1366-09 (July 2009); Judi Bartfeld, Forgiveness of State-Owed Child Support Arrears, U.W.-Madison Institute for Research on Poverty, Special Report No. 84 (Feb. 2003).

    25 Source data from WISH (Wisconsin Interactive Statistics on Health) Query System.

    26 Madison City Snapshot 2016, City of Madison.

    27 Carmen Solomon-Fears, Medical Child Support: Background and Current Policy, Congressional Research Service Report No. R43020 at 14 (Dec. 18, 2013); 21 Million Children’s Health: Our Shared Responsibility, Medical Child Support Working Group Report to the Secretary of U.S. Dep’t of Health & Human Servs. & Secretary of U.S. Dep’t of Labor, p. 3-29 (June 2000).

    28 42 U.S.C. § 1396k(a)(1)(B); 42 C.F.R. § 433.145(a)(2).

    29 H. Rpt. No. 101-881, 101st Cong. 2d Sess. 106-07 (1990).

    30 21 Million Children’s Health: Our Shared Responsibility, supra note 27, at 3-30.

    31 Id. at 3-31.

    32 Rep. Nancy Johnson (R-Conn.), Child Support Distribution Act of 2000, H.R. 4678, 106th Cong.

    33 Responsible Fatherhood and Healthy Families Act of 2007, S. 1626, H.R. 3395, 110th Cong.

    34 Susan C. Antos & Ellen M. Yacknin, What One Hand Giveth, the Other Hand Taketh Away: How New York’s Pregnancy-Related Medicaid Recoupment Policy Hurts Low-Income Families, Greater Upstate Law Project Inc. (Feb. 2000); Amanda Leipold, An Action Oriented Community Diagnosis of Maternity Care in Wisconsin, MPH Capstone Research Poster, U.W.-Madison (2012).

    35 Schlenker et al., supra note 7, at 272;Meghan Pesko, Wisconsin’s Birth Cost Recovery Policy: Implications for Health Disparities in Infant Mortality, MPH Capstone Thesis, U.W.-Madison (2012); Ngui et al., supra note 6, at 356.

    36 Dane County Fetal Infant Mortality Review 2011-2012, Public Health Madison & Dane County (2014).

    37 Milwaukee Health Dep’t, City of Milwaukee 2015 Infant Mortality Rate (IMR): Data Brief 4, (June 14, 2016); Milwaukee Health Dep’t, City of Milwaukee 2016 Infant Mortality Rate (IMR): Data Brief 4 (May 22, 2017).

    38 Birth Cost Recovery in Wisconsin: “It’s Not Child Support,” supra note 8, at 4.

    39 See, e.g., Letter from Wis. Child Support Enforcement Ass’n to Legis. Study Comm. on Child Placement & Support (Nov. 12, 2018).

    40 Bartfeld, supra note 24; Cancian, supra note 24.

    41 42 C.F.R. § 433.153(b).

    42 42 C.F.R. § 433.140(c).

    43 State Health Facts, Total Medicaid Spending, Henry J. Kaiser Family Foundation.

    44 U.S. Dep’t of Health & Human Servs., FY2017 Federal Medical Assistance Percentages (Dec. 29, 2015).

    45 Letter, supra note 39.

    46 Report from Secretary of Wis. DHS to Wis. Joint Comm. on Finance (Dec. 28, 2018).




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