“Free Care” Rule


“The goal of this new guidance is to facilitate and improve access to quality healthcare services and improve the health of communities. –Centers for Medicare & Medicaid Services

In December of 2014, the Centers for Medicare & Medicaid Services (CMS) issued a letter to state Medicaid directors announcing a policy shift that allowed states more flexibility in their school-based Medicaid programs: Schools could seek reimbursement for all covered services provided to all children enrolled in Medicaid, regardless of whether the services are provided at no cost to other students.

This became known as the “free care” policy reversal — a misnomer of sorts, as the decision didn’t interfere with healthcare provided for free. Rather, the original policy had prohibited Medicaid reimbursement for school health services if the same services were provided free of charge to the general student population unless the services were specifically included in a student’s Individual Education Plan (IEP) or Individualized Family Service Plan (IFSP), or delivered through the Maternal and Child Health Block grant.

Even though the federal policy shift opened the door to greater financial support for states and school districts, most states did not immediately take advantage of it. Many states had codified the original CMS policy, stating that districts could only seek reimbursement for health services delivered under a student’s IEP or IFSP. Several had formalized the original policy in state law.

As of October 2023, more than two dozen states have successfully expanded their school-based Medicaid programs, most through a state plan amendment, with more states working to do so. The School Medicaid Programs Map shows where each state is in the process.

Increasingly, states and school districts see expanding school-based Medicaid programs as an opportunity to bring in additional resources to expand access to health services for vulnerable students. And, as school districts consider how to meet the increased demand for mental health services in schools, policymakers are considering every available option to build capacity at the state and local levels.

Aligning With Federal Policy

Many states codified the pre-2014 restrictive school Medicaid policy on reimbursement into their state Medicaid plan. In order to leverage the current policy, which allows reimbursement for covered health services delivered to all students enrolled in Medicaid, those states need to submit a state plan amendment (SPA).

A small number of states codified the policy in state law as well. While state law can present a barrier to the implementation of the revised CMS policy, it can also serve as an important tool for catalyzing action. In those cases, state policy and program decisions would determine the opportunity for school districts to begin billing for additional populations.

State Plan Amendments

Every state has its own process for moving a SPA forward, but it’s worth noting that state Medicaid departments change state plans regularly — and Medicaid officials can advise on the formal process for pursuing a SPA.

In general, a state submits paperwork to CMS requesting the policy change and then works with CMS to iron out the details, with other stakeholders joining in as needed. While there are time clocks on how quickly the SPA process should move, CMS can start and stop the clock.

There is now a significant amount of activity around school-based Medicaid. Many states are considering expanding the program to include billing for all Medicaid-enrolled students — and to add additional services and provider-types to the list of covered benefits and services. A number of states have expressed interest in expanding their programs to increase access to behavioral health services to address unmet mental health needs.

As a result, many states already have — or are planning to — submit SPAs. View the School Medicaid Programs map and this overview of state activity to learn where states are in the process