The U.S. Department of Health and Human Services (HHS) released Friday its final rule on the expansion of Medicaid under the Affordable Care Act (ACA).

The rule finalizes the new eligibility parameters for Medicaid and outlines what states must do to incorporate the program into the health insurance exchanges that they must also establish as part of the ACA.

Under the rule, states can choose two ways to utilize the exchange to determine who's eligible for Medicaid in the expansion:

  • The exchange can make a final determination on Medicaid eligibility based on the information provided by the user;
  • The exchange can make a preliminary determination based on the user’s information and then direct the user to the state Medicaid office for a final decision.
The rule also dictates what criteria states will use to determine Medicaid eligibility. It will be based on Modified Adjusted Gross Income (which amends adjusted gross income with a number of exceptions such as student loan interest or tuition expenses, according to the Internal Revenue Service) and consolidates individuals into four groups: adults, children, parents and pregnant women.

States are expected to modernize their eligibility verification process by utilizing electronic data sources, and the federal government will assist that effort by giving states access to a “hub” with federal data sources, such as the Social Security Administration and the Department of Homeland Security.

The ACA requires states to expand Medicaid coverage to all individuals and families within 133 percent of the federal poverty level ($14,856 for an individual; $30,656 for a family of four). HHS will provide 100 percent of the funding for newly eligible enrollees until 2016, and then that match decreases to 90 percent by 2020.

HHS said final rules on the federal Medicaid match under the ACA are still being produced.

The department released the fact sheet below to explain the rule.