Chapter 7: Fiscal/Employer Agent Services Table of Contents

Chapter 7: Fiscal/Employer Agent Services

Table of Contents

A. Overview of Financial Management Services 7-1 What Are Financial Management Services? 7-1 Employment Status of Workers in Self-Direction Programs 7-5

B. Fiscal/Employer Agents: Key Characteristics 7-6 Government Fiscal/Employer Agents 7-6 Vendor Fiscal/Employer Agents 7-9

C. Key Issues For States Using Government and Vendor F/EAs to Provide FMS 7-12 Need to Obtain F/EA-Agent-Related Knowledge 7-12 Verifying State and Local Tax, Labor, and Workers' Compensation Insurance Requirements 7-12 Need to Assess States' Data and Information Systems Capabilities to Implement F/EA Services 7-12 Determining Whether F/EA Services Will Be an Administrative Function or Program Service 7-13 Determining How Many F/EAs to Use 7-13 Allowing SufficientTime to Set Up F/EA Services 7-14 Establishing Reimbursement for F/EA Services 7-14 Transitioning Participants From One F/EA to Another 7-16 Coordinating FMS with Counseling Services and Ensuring Effective Communication Between F/EAs and Counselors 7-16 Need to Assess Initial Readiness and Monitor the Ongoing Performance of F/EAs 7-17

D. Key Issues for Government and Vendor F/EAs 7-17 Staying Up-to-Date with Federal, State, and Local Tax, Labor, and Workers' Compensation Insurance and Medicaid Requirements 7-17 Developing and Maintaining a Government or Vendor F/EA Policies and Procedures Manual 7-17 Developing and Maintaining Effective Information Systems Capabilities 7-18 Developing and Implementing Effective Customer Services, Including Orientation andTraining for Participants 7-18 Developing Quality Management Systems 7-19

DEVELOPING AND IMPLEMENTING SELF-DIRECTION PROGRAMS AND POLICIES: A HANDBOOK | May 4, 2010

E. Promising Practices Related to the Provision of Government and Vendor F/EA Services 7-19 Advances in F/EA InformationTechnology 7-19 Timely Participant Budget Reports 7-20 Timely Payment of Workers 7-20 Maximizing the Availability of Cost Effective Workers' Compensation Insurance 7-20 Using Credit Unions as Vendor F/EAs 7-21

F. Outstanding Issues 7-21 Clarifying Federal and StateTax Procedures Related to F/EA Operations 7-21 Implementing Effective Data and Information Systems Infrastructure 7-21 Determining Effective Reimbursement Rates for F/EA Services 7-22 Recruiting More Workers' Compensation Insurance Agents to Broker and Carriers to Underwrite Policies for Self-Direction Program Participants 7-22 Addressing the Disconnects Between IRS Procedures and Medicaid Freedom of Choice of Provider Rules When a Participant Changes F/EAs Mid-Year 7-22 Obtaining Health Insurance and Other Benefits for Direct Service Workers 7-22

Resources 7-23 Publications 7-23 Web-Accessible Resources 7-24

Citations, Additional Information, and Web Addresses 7-26

DEVELOPING AND IMPLEMENTING SELF-DIRECTION PROGRAMS AND POLICIES: A HANDBOOK Chapter 7: Fiscal/Employer Agent Services | May 4, 2010

Chapter 7--Fiscal/Employer Agent Services

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Chapter 7

Fiscal/Employer Agent Services1

Self-direction programs offer participants choice of and control over their long-term services and supports. However, with choice and control come responsibilities, including those associated with being an employer, such as management of payroll and employment-related taxes. (In this chapter and throughout the Handbook, the term "participant" categorically includes their representatives.)

Various models of Financial Management Services (FMS) can reduce the employer-related burden for participants and program staff, but they often are the most complex component of self-direction programs to implement. Thus, in order to successfully implement self-direction programs using FMS, it is essential that states have designated program staff with the necessary knowledge who will make the commitment to stay up-to-date with Medicaid rules and regulations related to these programs; applicable FMS models; and federal/state/local tax, labor, and workers' compensation insurance requirements as they relate to household employers and domestic service workers.

This chapter describes the key features of five FMS models but focuses on the issues and challenges related to two in particular: the Government and Vendor Fiscal/Employer Agent (F/EA) models. These two FMS models are highlighted because they provide participants with a high degree of choice and control over their services--allowing them to be the common law employer of their workers while providing needed payroll and other fiscal supports.

A. Overview of Financial Management Services

What Are Financial Management Services?

The Centers for Medicare and Medicaid Services (CMS) defines Financial Management Services as: A service/function that assists the family or participant to: (a) manage and direct the distribution of funds contained in the participantdirected budget; (b) facilitate the employment of staff by the family or participant by performing as the participant's agent such employer responsibilities as processing payroll, withholding and filing federal, state, and local taxes, and making tax payments to appropriate tax authorities; and (c) performing fiscal accounting and making expenditure reports to the participant and/or family and state authorities.2

The provision of FMS is essential when implementing self-direction programs for several reasons.

The Medicaid ?1915(c) waiver authority does not permit payments for

DEVELOPING AND IMPLEMENTING SELF-DIRECTION PROGRAMS AND POLICIES: A HANDBOOK | May 4, 2010

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services to be made directly to participants, either to reimburse them for expenses incurred or to enable them to directly pay a service provider. Rather, payments on the participant's behalf must be made by an intermediary organization (i.e., either a qualified Medicaid provider or an entity under administrative contract with the state). This restriction also applies to the provision of Medicaid State Plan services.3

Medicaid funds are permitted to be disbursed directly to participants under ?1115 self-direction programs and the decision whether to require participants to use FMS is determined by the state based on its program design.4 In addition, under ?1915(j) of the Social Security Act, CMS does not require states to mandate the use of FMS for participants who elect the "cash" option. Instead, these participants may choose to retain responsibility for some or all of their fiscal and employer-related responsibilities. Even if participants choose to receive some benefits in cash and distribute workers' payroll checks directly, they may chose to have an FMS organization manage the federal and state tax filings and deposits and generate payroll checks for their workers.

Some FMS organizations may act as a neutral bank for receiving and disbursing public funds (i.e., Fiscal/Employer Agents).5 These entities do not provide direct care services, but rather, make payments to service providers and vendors per the direction of participant. This allows the participant to change service providers and vendors as they see fit, based on their level of satisfaction, helping to ensure the quality of their home and communitybased services (HCBS).

FMS provide fiscal accountability for state and local government agencies and safeguards for individuals enrolled in self-direction programs and their workers by ensuring that payroll,6 workers' compensation insurance policy management, and vendor payment tasks are performed accurately and in accordance with federal, state, and local rules and regulations, and in a timely manner.

Some FMS organizations (i.e., Fiscal/Employer Agents) can perform as a "mini management information system" for programs and participants providing a variety of financial reports related to the receipt of public funds, service use, and payments. These reports inform participants about their service use and related expenditures and also act as a fiscal and/or fraud monitoring tool for them and the program's staff.

When an FMS organization provides services under a co-employment arrangement7 with participants (e.g., an Agency with Choice or Public Authority/Workforce Council model), it can provide services directly for workers, (i.e., recruitment, training and supervision of workers, and provision of emergency backup staff), ideally, only at the request of participants who are acting as their worker's managing employer.8

DEVELOPING AND IMPLEMENTING SELF-DIRECTION PROGRAMS AND POLICIES: A HANDBOOK Chapter 7: Fiscal/Employer Agent Services | May 4, 2010

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Currently, states use one or more of five FMS models to implement Medicaid and state-funded self-direction programs: (1) Fiscal Conduit, (2) Government F/EA, (3) Vendor F/EA, (4) Agency with Choice, and the (5) Public Authority/ Workforce Council model. These models are described briefly in Table 1 below.

Table 1. Financial Management Services Models and Key Characteristics

FMS Model Fiscal Conduit

Operating Entity9

State or County (government agency) or Vendor

Government Fiscal/ Employer Agent

State or County government agency (In accordance with ?3504 of the IRS Code and IRS Rev. Proc. 80?4, 1980?1 C.B. 581 and as modified by IRS Proposed Notice 2003?70)

Worker's Employer Participants, unless agency services are used

Participants, unless agency services are used

Responsibilities

Disburses public funds via cash or voucher payments to participants and performs other related duties as defined by the program. Some may also provide training and testing for participants on payroll and funds management before allowing them to manage all employer tasks including payroll.

Under IRS rules, a state or local government entity acts as an "employer agent" for participants--performing all that is required of an employer for wages paid on the employer's behalf and all that is required of the payer for requirements of backup withholding, as applicable.10

It receives, disburses, and tracks public funds based on participants' approved service plans and budgets; assists participants with completing participant enrollment and worker employment forms; conducts criminal background checks of prospective workers; and verifies workers' information (i.e., social security numbers, citizenship or legal alien verification documentation).

It also prepares and distributes payroll including the withholding, filing, and depositing of federal and state income tax withholding and employment taxes and locality taxes;11 processes and pays vendor invoices for approved goods and services, as applicable; generates reports for state program agencies, counselors (also called support brokers, support coordinators, and other names), and participants; and may arrange and process payment for workers' compensation and health insurance, when appropriate.

The Government F/EA may choose to delegate employer agent tasks to a reporting or subagent per IRS Proposed Notice 2003?70.

(continued)

DEVELOPING AND IMPLEMENTING SELF-DIRECTION PROGRAMS AND POLICIES: A HANDBOOK Chapter 7: Fiscal/Employer Agent Services | May 4, 2010

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