Medicaid change allows dramatic expansions.

Whether Congress actually intended to revolutionize Medicaid when it passed a little-known provision in 1988 is a multi-million dollar question. Referred to as the "1902(r)(2) option," it may be a loophole similar to the provider tax bandwagon jumped on by more and more states to generate a Medicaid match.

Once the buried language amending section 1902(r)(2) of the federal Medicaid statute was discovered in the Medicare Catastrophic Coverage Act of 1988, it was interpreted to mean that states have much more flexibility to expand their Medicaid populations. Word spread among state Medicaid programs, and a few states leapt at the chance to capture much-needed federal money to cover more of their uninsured populations.

Vermont-which was using state-only money to finance health insurance for low-income children and pregnant women who did not qualify for Medicaid-applied to the Health Care Financing Administration (HCFA) to amend its Medicaid plan. The state now receives its nearly 60 percent federal match for eligible children through age 17 with family income up to 225 percent of the federal poverty level, and pregnant women with income up to 200 percent.

The state of Washington expanded eligibility up to the poverty level for children through age 18, receiving a 55 percent federal match. Delaware also uses Medicaid funds to help finance its new children's health insurance initiative. With a federal match of 50 percent, Delaware covers children up to age 18 from families with low incomes.

Minnesota received permission from HCFA to expand its Medicaid eligibility to 275 percent of the poverty level for children through age 18 and pregnant women. Pending legislative approval, the expansion will become effective July 1, 1993.

Other states use the 1902(r)(2) option differently. For example, Maryland and North Carolina exclude parents' income when determining Medicaid eligibility for pregnant teenagers. South Carolina expands Medicaid eligibility to pregnant women by giving a monthly $200 deduction for child care for each child. Massachusetts disregards court-ordered child support and alimony when determining eligibility.

And the flexibility doesn't just apply to children and pregnant women. California, Connecticut, Indiana and New York disregard certain resources to qualify more older people for Medicaid-covered nursing home care.

The apparent flexibility under 1902(r)(2) especially benefits states that already use state-only money for health care coverage for certain uninsured populations. It also may benefit other states seeking to provide access to health care for 35 million uninsured Americans.

Under standard state Medicaid programs, the nationwide average for income eligibility is 44.3 percent of the federal poverty level, or $5,126 for a family of three. Certain children and pregnant women are exceptions to the standard eligibility thresholds. States must extend eligibility to children through age 5 and pregnant women with family income up to 133 percent of the federal poverty level. States also must phase in coverage for children born after Sept. 30, 1983, with poverty-level family incomes. States also are familiar with their ability to extend eligibility for pregnant women and infants with income up to 185 percent of the poverty level.

Now with the liberal eligibility interpretation under section 1902(r)(2), states may apparently capture federal Medicaid money to help pay for health care to even larger populations. Several states are viewing the option as another interim tool until, and if, Congress adopts massive health reform.