Skip to content
Quick Start for:

Appendix B (2.8 thru 2.13)

Part 2 (2.8 thru 2.13)

2.8. An Electronic Card-Based Med ID System

An electronic system can overcome many of the disadvantages of a paper-based Med ID system. To accomplish that goal, the system must:

  • Meet minimum specifications, including at least daily updates of all relevant information;
  • Be designed to allow secure, authorized access to the data;
  • Limit access to Medicaid eligibility status only; and
  • Be available seven days a week, 24 hours a day.

An electronic Med ID card by itself is not a guarantee of eligibility; it is merely the electronic key to accessing an on-line eligibility verification system. Unlike the current paper-based process, as an individual's eligibility status changes, the electronic Med ID card itself is not replaced. The information on the database can be updated frequently so that it contains the most accurate, available eligibility information, and can be accessed on-line, 24 hours a day, seven days a week.

When Medicaid clients visit a health care provider for services, the plastic Med ID card would be swiped through a card reader, or terminal. If the card was not available, access could also be obtained by manually entering the Medicaid ID number. The local reader could connect directly to a statewide Medicaid eligibility database or to a third-party processor, as is currently done by many large hospitals and physicians. The patient would enter a confidential personal identification number (PIN) to identify themselves as the authorized holder of that card and information on that client's eligibility would be returned to the provider. The provider would be required to either use the card reader or use the alternate telephone access system to verify client eligibility.

Security could be enhanced by not encoding the client's Med ID number on the card face or the magnetic stripe. Instead, a unique card ID number could be placed on that card which, along with the use of a PIN, could then access the recipient's Med ID number and information. If the Lone Star card is used, it would be possible to use the EBT personal account number (PAN) system currently printed on that card as the Med ID card control number.

Once the online system was accessed, the health care provider could receive verification of the eligibility record in a variety of ways, depending on their needs and technical capabilities and on whether a third-party processor is used. This information could feasibly be available to providers by fax, through a card reader with print capability, to a personal computer, or to a local area network. This electronic record could identify the client's eligibility type. It could also contain an authorization number, which could be used when billing for the services provided. This reference, and a corresponding electronic record on the state EBT system, would guarantee that the provider would not be denied payment for any covered services provided on that day, based on client ineligibility.

The Health Care Financing Authority (HCFA), the federal agency responsible for Medicaid, has extensive regulations regarding eligibility, client notification, confidentiality, and privacy. In particular, the proposed Health Information Portability and Accountability Act (HIPAA) regulations governing privacy of medical records must be carefully considered. Private vendors in the medical identification verification business comply with these standards now. 11 To date, HCFA has supported efforts of states to develop electronic verification systems. HCFA is expected to support Texas as it implements a similar system.

2.9. Advantages of an Electronic Med ID System

Immediate improvements should be expected from a change to an electronic card-based Med ID system. Although some mailings to clients would likely continue, a substantial administrative savings could be realized from the reduction in paper and processing, and mailing costs that could be eliminated by implementing an electronic Med ID system. Medicaid, TANF, and Food Stamp Program expenditures would also be saved as a consequence of a later cutoff date, since there would be more days in the month to process case changes that would reduce (but not deny) the benefit amounts. 12

To the extent the cutoff date can be pushed closer to the end of the month, more cases can be processed and benefit levels can be appropriately reduced. A saving to the state could be realized in both Medicaid premiums and program benefits. Currently, cutoff is five to seven working days before the end of the month. By changing to an electronic Med ID process this period can be reduced by two to three working days.

In addition to reduced administrative and program costs, an electronic Med ID process could reduce the use of the Med ID by ineligible persons. A magnetic stripe card with a PIN to access the database would improve the security of the system. Although it would not eliminate the sharing of a card and its associated PIN, it should result in a decline of this type fraud. If the Med ID were incorporated on the existing Lone Star Card, the value of the combined medical services, Food Stamps, and TANF payments may also encourage less sharing of the card. In addition, the card itself would be more difficult to duplicate than the current paper Med ID.

More precise and timely information about eligibility should decrease the number of rejected claims due to providers delivering services for which the client is not eligible on the date of service. A faster, on-line, more accurate system with up-to-date information could increase efficiency and result in greater provider participation.

Notices to clients could be downloaded at the same time as the eligibility information, and the provider could give a copy to the recipient. Client confidentiality requirements would need to be assessed if messages were sent to clients in this manner.

An electronic Med ID system would open the door for further improvements. Once the card technology is implemented for Medicaid, there is potential for expansion to other Medicaid-related functions, such as an on-line payment system, and to non-Medicaid health programs operated by state agencies.

2.10. Disadvantages of an Electronic Med ID System

As with any significant change, there are some limitations or disadvantages that should be recognized when moving away from the current paper Med ID system.

The current Med ID mailing process is also used as a mechanism for sending general Medicaid information or specific information to targeted client populations. Some months, preprinted stuffers are inserted in the envelope with the Med ID mailing. One stuffer can be inserted with each Med ID without incurring any additional postage charges. Alternate methods would be needed for providing any required information to clients if there no longer was a monthly Med ID mailing. Other states have planned for a maximum of two general information mailings per year for notifications considered mandatory, such as the Texas Health Steps Program's reminder notices. 13

Many Med ID types have some program specific information preprinted on the front of the form, and all Med ID types have general program information preprinted on back in both English and Spanish. Some alternate provision for providing this information would be needed if the current paper system were eliminated. Some or all of this information could be printed on the paper card-carrier that is initially sent with the card.

Medicaid services for TANF clients are delivered through a managed care organization in many areas in the state. Managed care in Houston also serves the aged and persons with disabilities. There is a behavioral managed care project in several counties in the Dallas area. If a card-based electronic Med ID system were implemented, families in each of those regions of the state could receive multiple cards -managed care HMO cards, and Med ID cards (only the Med ID card would be an electronic card). There is potential for these functions to be integrated into one card in the future.

2.11. Access to Information and Backup

The Med ID database contains information critical to clients and to providers of medical services. For the client, eligibility status can change, and an individual may need to know what his or her status is before visiting a health care provider. Providers need information to authenticate eligibility 24 hours a day, seven days a week, to ensure services are provided to Medicaid eligible persons and that the service is a covered Medicaid benefit.

An electronic Med ID system can provide the necessary information quickly and effectively, by allowing access directly to the database. The system can be designed such that the state manages the access process, or outsources this function.

An ancillary private industry has developed over the last 15 years around both the electronic verification, and processing and payment of Medicaid claims. Several companies are in the business of assisting Medicaid providers with one or more aspects of this service in many states. A company that assists in the verification process, provides the telecommunication service that is used to access the database and returns the information to the provider. These companies may also furnish providers with the hardware and software needed to use the system, in return for a subscription fee and a charge for each transaction. Typically, a portion of the transaction fee charged by the company to the provider is returned to the state.

The use of third-party processors has become common enough that HCFA has published policy guidance regulating the operation of these companies. 14 In their guidelines, HCFA recommends limiting the number of contracts a state authorizes to three, but leaves the decision on the number of third-party processors to the state. The companies must have contracts with the state authorizing them to perform the service and establishing the rules that must be followed.

Five Med ID companies currently do business in Texas under contract with TDH, assisting hospitals and physicians with electronic claims processing. These companies pay TDH seven and one-half cents per transaction to obtain the information on Medicaid clients for hospitals and physicians. The companies can also check non-Medicaid patients' eligibility for other medical insurance. These companies charge hospitals and physicians a rate of twenty to thirty nine cents per transaction.

There are situations when alternatives to the electronic Med ID card system must be available for access to information. When an electronic system is inaccessible, when a client does not have their ID or the ID card fails, or for any other unanticipated condition when information cannot be accessed electronically, a backup system must be available. A system must also be available and easily accessible by clients to obtain eligibility status before visiting a provider and for those providers who choose not to use the electronic process.

One alternative to the use of card based access is an automated voice response (AVR) system like that used by the Lone Star EBT2 system and the TDH Medicaid hot line. An AVR can provide access to the Medicaid eligibility information system and the backup necessary to accommodate the needs of both clients and providers. Such a system could build on the existing Medicaid Hotline or the Lone Star call center.

2.12. Other States' Experiences

The need to offer health care providers an efficient means to verify or authenticate Medicaid eligibility for patients, and the state's need to track and document the services provided for purposes of accountability and program integrity, is not unique to Texas. Over the last ten years, a significant trend has been developing. At least 20 states have implemented, or are in the process of developing, some form of electronic verification system for use by health care providers. Other states are exploring the possible use of electronic IDs, but have not started the process for developing a system. The states with operating systems maintain an up-to-date database of Medicaid eligibility information and provide on-line access to health care providers 24 hours a day, seven days a week. A feature common to these systems is the issuance of a plastic, magnetic stripe Medicaid ID card for each client. The cards are a physical means of identification, and the magnetic stripe provides a convenient means of access to the electronic verification system. Exhibit 5 identifies states with implemented or planned magnetic stripe Med ID cards.

Exhibit 5
JULY 2000
  State Date Implemented # Active Cards Equipment Source
1. Alabama 1993 650,000 Third-party Provider
2. Arkansas 1993 250,000 State
3. Arizona 1998 430,000 Third-party Provider
4. California See Note Below 5,000,000 See Note Below
5. Florida 1991 2,000,000 Third-party Provider
6. Illinois 10/2000 Not Implemented Not Implemented
7. Indiana See Note Below See Note Below Third-party Provider
8. Louisiana 1998 700,000 Third-party Provider
9. Mississippi 1994 550,000 Third-party Provider
10. Missouri 1995 650,000 Third-party Provider
11. New Jersey 10/01 Not Implemented Not Implemented
12. New Mexico 4/01 Not Implemented Not Implemented
13. New York See Note Below See Note Below See Note Below
14. North Dakota 1997 50,000 Third-party Provider
15. Oklahoma 1998 437,000 Third-party Provider
16. Pennsylvania 1993 1,300,000 Third-party Provider
17. South Dakota 1997 200,000 Third-party Provider
18. Tennessee See Note Below See Note Below Third-party Provider
19. Virginia 7/2001 Not Implemented Not Implemented
20. Wisconsin 1999 400,000 Third-party Provider
Source: Texas Comptroller of Public Accounts, survey of other state Med ID systems, conducted June 2000.
Note: Information requested, not available from the state.

States with electronic verification systems typically provide a variety of alternate means to access the system, so that the technology can be scaled to the typical health care provider. A provider that sees very few clients may bypass electronic verification, and instead call a toll-free number, provide certain information about the client, and verify eligibility in that manner.

A provider may have a stand-alone card reader (terminal) connected to a phone line. When the card is swiped, the terminal uses the information coded on the magnetic stripe to dial the Medicaid database and verify the information. The system can send information to the terminal, to be either displayed or printed depending on the type of terminal used. This information could include a recipient's eligibility type, lock-in details, service limitations, Medicare eligibility, and more.

The provider may have a card reader connected to a personal computer (PC) or a local area network (LAN), which dials into the system. The message that is returned can be electronically stored in the health provider's computer rather than simply printed on a receipt.

In most states where magnetic cards are in use, regardless of the means of verifying the information, each inquiry generates a unique tracking number.

The first state electronic process systems were implemented in Massachusetts and New York, and date to the late 1980's. Florida implemented a unique process using third-party vendors to support the hardware and software, at no cost to the state. Seven other states currently use the Florida model, and four more are in the process of implementing the model. Exhibit 6 identifies the 11 states and the status of their systems.

Exhibit 6
Arizona Implemented 1998
Illinois To Be Implemented 2001
Louisiana Implemented 1998
Mississippi Implemented 1994
Missouri Implemented 1995
New Mexico To Be Implemented 2001
New Jersey To Be Implemented 2001
North Dakota Implemented 1997
Oklahoma Implemented 1998
Virginia To Be Implemented 2001
Wisconsin Implemented 1999
Source: MediFAX, The State of Texas Presentation, July 2000; page 5.

The system other states are using is basically the same as the Florida model with the exception of who pays for the various components of the system. In the Florida model, the costs of the equipment to read the cards and the transaction costs for using a third-party company are the responsibility of health care providers, not the state. Since most of the systems are based on the Florida model, an examination of this model will demonstrate how the electronic Med ID process works.

Florida Experience

In 1991, Florida produced over one million paper eligibility cards each month, with a postage cost of about $250,000, or $3 million per year. Approximately 30,000 cards were returned undelivered each month, due to incorrect addresses or other problems. Over two million provider claims were denied each year for services that had been provided to clients who were later found to be ineligible on the date of service. 15

Florida began a pilot in Key West in 1992 for an electronic eligibility verification system using a magnetic stripe Med ID card to be given to each Medicaid recipient. The pilot was successful, and in 1993, the system was implemented statewide over a 10-month period. Florida conducted a series of training sessions across the state for providers. The state's Medicaid fiscal agent provided sponsorship, and the companies that planned to participate in delivering the services paid to exhibit at the sessions, minimizing the cost to the state. 16

In the Florida Medicaid system, each eligible individual is issued a card. The cards are used only as part of the Medicaid eligibility verification system, and do not contain information for any other program. Florida negotiated an arrangement with their Medicaid fiscal agent to produce and issue the cards to clients. The third-party processors pay a fee to the fiscal agent for each inquiry made to the system. The number of inquiries was projected to increase significantly with this system, so Florida convinced their agent to absorb the cost of producing the cards out of the increased revenue.

There is an electronic link between the state's on-line eligibility determination system and the Medicaid verification database. As part of the nightly update to the Medicaid verification system, newly eligible clients are identified and cards issued. The fiscal agent is required to mail new cards within 48 hours, so a client generally receives the plastic card within five to seven days of applying for eligibility. A client can get a temporary paper card from an eligibility worker if necessary.

A Medicaid card issued in Florida can be used indefinitely. If a client loses and regains eligibility, he or she continues using the same card. Initially, the state estimated the average life expectancy of a card at three years, but in actual experience it has proven to be longer than that. In fact, some of the cards issued in the original pilot area in 1992 are still in use. Across states with a magnetic stripe card system, the annual replacement rate for cards, due to loss, damage, wear, or failure, ranges between 1.2 and 2.5 percent. This compares favorably with the loss rate in the commercial credit card industry (typically about 2.5 percent per year). 17

Florida authorizes ten companies to provide the electronic access to health care providers. As part of their contract, the companies are acting as an agent of the state, and agree to follow the state's protocol and provide a certified transaction to the provider. A provider who wants to use electronic verification must use one of these companies to access the system. A provider who chooses not to use the electronic system can call a toll-free number to obtain access to the system through an AVR system by providing specified pieces of information about the client (based on HCFA guidelines).

Although no formal evaluation studies have been performed, Florida Medicaid staff report that the response from providers and clients has been positive. Florida estimates it recouped its conversion costs during the implementation time period. 18

2.13. Lessons for Texas

Texas has the opportunity to learn from and improve on what other states have done with an electronic Med ID system. While there are many differences in systems, a few key elements appear to be consistent from state to state.

All states issue one card per eligible person, rather than one card per household or one card per case. This allows individuals within a household to obtain services in different locations at the same time and eliminates the need to replace cards whenever the composition of a household changes.

Other states use their Medicaid ID cards only for Medicaid purposes. The cards do not contain information on any other programs. When Florida pioneered the electronic verification approach, the concept of electronic delivery of services was unknown, and the United State Department of Agriculture (USDA) EBT systems for Food Stamps were still in the pilot stage. Consequently, the concept of using the card for multiple applications was not considered. As other states have implemented similar systems, they have followed Florida's lead in using the card for a single program application. This approach avoids the complexities of coordinating with other programs and across agencies.

All states provide alternate means of access into the electronic verification system. Typically there is a toll-free number for providers and clients to call in the event the system is down, or if the provider chooses not to use the electronic process. Some states, such as California, provide on-line access through the Internet.

States with electronic verification systems typically have electronic billing systems for claims as well. The electronic verification systems improve the accuracy of the eligibility determination process and eliminate most rejected claims due to client ineligibility. However, the verification and claims payment processes are not directly linked. The electronic verification systems all assign a tracking number for each inquiry. A provider will not have a claim rejected for client ineligibility if the provider has made an inquiry into the system and received verification, via a confirmation tracking number, that the client is eligible. However, the system only verifies that the client is eligible. It does not guarantee that the provider will get payment for a claim for ineligible services. 19