Medicaid is not just health coverage. It is a significant source of federal funding for K-12 public schools—a lifeline that enables schools to provide essential health services to improve student health and learning. School districts across the U.S. use Medicaid to cover a range of health services in addition to paying for the salaries of school health personnel.
In 1988, under the Medicare Catastrophic Coverage Act, Congress authorized that Medicaid funding could be used to pay for health services that were part of a child’s Individualized Education Program (IEP) or Individualized Family Service Plan (IFSP). However, Medicaid coverage for school health services was limited due to a policy known as the “Free Care Rule.” This policy prohibited Medicaid reimbursement for school health services that were provided free of charge to the general student population. School districts were only able to obtain Medicaid reimbursement for services provided to Medicaid-enrolled students with IEP or IFSP.
The Free Care Rule restricted access to school health services for students. For example, if a school offers free vision screening to all students, it cannot bill Medicaid for the service provided to students who are enrolled in Medicaid because of the Free Care Rule. With schools unable to access Medicaid funding, they often face a difficult decision: use limited educational funds to support school health services or reduce or eliminate the services altogether.
Free Care Rule Reversal & Opportunities in School Medicaid Expansion
In 2005, the Health and Human Services (HHS) Departmental Appeals Board (DAB) ruled that the Free Care Rule was not supported by the Medicaid Act or regulations. However, it was not until 2014 that CMS officially reversed the rule, expanding Medicaid reimbursement for services that are offered at no cost to the community at large, as long as other Medicaid requirements are met. The reversal of the Free Care Rule eliminated a key barrier that prevented schools from accessing Medicaid funding for health services. The reversal opens doors to how schools can take advantage of this sustainable funding source to serve more low-income, Medicaid-eligible students.
The Free Care Rule reversal has demonstrated significant financial impact at the state level. Illinois saw an increase in approximately $17.8 million in Medicaid funding for school districts following the first year of expanding the school-based Medicaid program in 2023. In Georgia, school Medicaid expansion generated approximately $20 million for school nursing services. This policy change presents many opportunities for schools to expand and improve their school health services to meet the needs of students. Yet, implementation challenges and administrative burden make it difficult for many schools to take advantage of this policy.
Current Landscape of School Medicaid
States are not automatically enrolled in school Medicaid expansion. For the Free Care Rule reversal to take effect, states may require legislative changes and/or state plan amendments to ensure their school Medicaid program can cover services outside of an IEP/IFSP. To date, only 28 states have modified their Medicaid state plan amendments to expand school Medicaid. The scope of school Medicaid expansion varies across states. Some states adopted comprehensive coverage through school Medicaid expansion to cover all medically-necessary services provided to all Medicaid-enrolled students while other states limited Medicaid coverage to specific services provided to certain student populations. It is at the discretion of individual states to specify the type of services covered and the type of health providers eligible to bill for school Medicaid.
School Medicaid also varies at the school district level. A change in the state plan amendment to expand school Medicaid does not mean all school districts will implement the change. School districts have the flexibility to decide whether to adopt or not adopt school Medicaid expansion. The variation in policy implementation makes it difficult to evaluate the impact of school Medicaid expansion on students’ health services utilization and health outcomes.
Implementation Challenges
Schools are not designed to operate as health care systems. Expanding school Medicaid programs and delivering health services to students demand significant administrative and technical capacity that often falls outside the traditional capabilities of school infrastructures. As such, state and local leaders face implementation challenges such as extensive documentation, reporting, and consent requirements necessary to maintain compliance with Medicaid rules. With only sixty-five percent of schools having access to a full-time school nurse, schools often lack the staffing capacity to manage the complexity of school Medicaid.
Small and rural school districts are disproportionately burdened by the administrative complexity of Medicaid billing, which can discourage under-resourced, high-need school districts from participating in school Medicaid expansion. Among the 750 school districts surveyed, eighty-four percent of the school districts that do not seek Medicaid reimbursement are rural districts with a high percentage of their students eligible for free or reduced lunches. Some rural school districts reported that they no longer participate in school Medicaid because they lost money due to Medicaid compliance requirements. Other districts reported being unable to outsource Medicaid paperwork to third-party vendors and facing shortages of qualified Medicaid providers in their communities. For smaller and rural school districts, the costs of participating in school Medicaid simply outweigh the financial benefits of participation.
The challenge is not whether school Medicaid is effective in improving children’s health but whether school Medicaid funding can be accessible to school districts that need it most. As school districts continue to struggle with the complexity of Medicaid requirements, a greater threat is emerging through significant Medicaid funding cuts that could jeopardize school health services and students’ well-being.
In the next blog, I will explore how H.R.1 could further strain school Medicaid programs and examine what those cuts could mean for students who depend on school health services for their basic health care needs.