Special Ed Squeeze: The Feds Are Cutting the Medicaid Funds Many States Rely on to Provide Health Services for Disabled Students

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It seemed like a good idea," says Senator Ed Olson of South Dakota. Use Medicaid funds to provide health services mandated under federal special education legislation to disabled students.

So that's what South Dakota and other states did: maximize their resources for special education. But soon states will see a sharp decline in federal support for special education, especially health-related services required by law that have been paid by Medicaid.

"The feds tell us that these services must still be provided, but the money is yanked away from us," Olson says. "As a principal, school administrator and chair of the Senate Education Committee, this disappoints me greatly."

The president's budget proposal for FY '07 would eliminate nearly $3 billion from the nation's special education system over three years by reducing or eliminating reimbursements for administrative and transportation services. Who will then pay for these required services? States and local school districts.

Federal law mandates that every child, including children with disabilities, receive a "free and appropriate public education." But providing education for students with disabilities has proved to be anything but free for states and localities. On average, 22 percent of K-12 education funds are allocated for special education students, who account for about 13 percent of the total student population.

"The feds are mandating that states will provide a free and appropriate education, and then not following through with the resources they promised" says Senator Robert Plymale, chair of the West Virginia Senate Education Committee.

Historically, states have had two sources of federal funds to help pay for educating students with disabilities. Federal grants under Part B of the Individuals with Disabilities Education Act (IDEA) fund a portion of the education. States can also use Medicaid reimbursements to cover health related services identified in a child's individual education plan (IEP). But administering these services under two revenue streams has generated confusion, frustration and difficulty in an already underfunded system.

IDEA MOSTLY UP TO STATES

The federal government set ambitious goals under the Individuals with Disabilities Education Act, but left states and localities to pay for the bulk of a child's education and related services.

"We get hammered because the feds say we are not in compliance, but their rules are inconsistent and their resources insufficient," says Senator Olson.

States must comply with the act to receive federal funding in the form of Part B grants. They could conceivably opt out of participating in IDEA without federal sanctions. But states are still obligated to ensure that students with disabilities receive public education, whether or not the state receives federal funding.

JUGGLING MEDICAID

Each state has its own Medicaid system, which includes a federally approved state plan. Although states have considerable flexibility in designing and operating their Medicaid programs, they must comply with federal requirements specified in Medicaid statute and regulation.

Most states use Medicaid funds to pay for reimbursable health-related school-based services for children who have an IEP and are enrolled in Medicaid. These services are divided into two categories: medical assistance--which includes transportation; physical, occupational and speech therapies; and diagnostic, preventive and rehabilitation services--and administrative activities, including outreach, application assistance, and coordination and monitoring of health services.

States can't use Medicaid funds to pay for health services that the state provides to all students.

STATE-FEDERAL CONFLICTS

Although Medicaid was originally the payer of last resort, statutory changes in 1988 changed it to payer of first resort. …