Special Education

FAQs About Medicaid in Special Education

7 min. read

Medicaid has been linked to special education for decades and is a valuable resource, through reimbursement, to public schools. However, there is plenty of confusion about the correct way to seek Medicaid reimbursement, how to properly document IEPs as they relate to it, and the viability of Medicaid’s role in special education as a whole.

So, what’s causing all this confusion and doubt? First, Medicaid rules and regulations are always changing. It’s also a state-administered program, meaning that while it is federally mandated, there are many differences in how states administer it; what is allowable in one state may not be allowable in another. Additionally, there have been highly publicized accounts in the past decade of excessive and improper billing in numerous states.

These frequently asked questions and the information their answers provide will help you gain a better understanding of how Medicaid works within public education, why it’s an important special education funding component and what can be done to keep the program viable well into the future. This information will also help your district maximize its Medicaid reimbursement while ensuring efficiency and compliance with every claim.

How does Medicaid relate to public education?

As you’re probably aware, the Individuals with Disabilities Education Act (IDEA) requires that free and appropriate public education (including special education and related services) is available to eligible children with disabilities throughout the United States. Subsequent legislation mandates that Medicaid funds be used to help provide special education and related services to these individuals with disabilities. This primarily comes in the form of Medicaid reimbursement.

How do school districts get reimbursed for services they’re providing under this program?

  • The student must be under 21 years old
  • The services must be medically necessary
  • In most cases, the services must be included in the student’s IEP
  • The student must be Medicaid-eligible
  • The services must be provided by a properly credentialed professional
  • The Local Education Agency (LEA) or school district must be registered as a Medicaid provider
  • The LEA or school district must follow state guidance as to how claims are to be submitted for reimbursement

What types of expenditures can be reimbursed through Medicaid? 

Direct Medical Services

School districts can seek reimbursement for direct, health-related services provided to Medicaid-eligible students. Depending on the state, nursing services, speech-language pathology, audiology, occupational and physical therapy, personal care services, counseling and psychological services, specialized transportation, among others may qualify for reimbursement. These services must be provided by school employees or contracted staff in a school-based setting.

States have some flexibility regarding the limits, requirements and restrictions on billing by school districts. Limits on service frequency, duration and type, group size limitations, supervision requirements and reimbursement rates vary from state to state. As with all rules regarding Medicaid, it’s important to understand the rules in your state.

Administrative Claiming

School districts can also seek reimbursement for certain administrative costs associated with special education. This mainly pertains to outreach services, which can be wide-ranging. These services are often performed by many of the same people providing direct medical services.

Outreach is a crucial role of school districts when it comes to Medicaid and special education. There is often misinformation regarding these benefits, misinterpretation of rules or misunderstanding of how Medicaid in education differs from Medicaid for individuals. More and more schools are engaged in Medicaid outreach activities to inform students and their families about the availability of Medicaid and state CHIP programs, and to assist them with applying for those programs.

Common misconceptions about Medicaid in education

1. The school district is profiting from Medicaid reimbursement.

This often comes from the notion that the services are already funded by other sources and the Medicaid reimbursement is just “money in the bank.” While it’s true Medicaid reimbursement increases the amount of funds a district has to spend, we can all agree there is no shortage of funding needs for school districts as a whole. The reimbursement provides much-needed relief to districts that must spend a lot of their funding caring for students with special needs. That money can then go to other important areas.

To get slightly more technical about how a district does not profit, we should mention state and local vs. federal funding. Medicaid reimbursement comes from federal funds. So, if you used federal dollars to pay for special education services and then sought reimbursement from Medicaid, you would be double-dipping. This is why it is so important for districts to ensure the money used for Medicaid-qualifying services, salaries and equipment is spent out of state and local funding – so the district isn’t seen as dipping twice into that “federal funds” bucket.

2.  If the school district bills Medicaid for these services, it will affect the child’s individual Medicaid or other insurance coverage.

This issue often comes up during the IEP/ARD process when it comes time to complete a parental consent form. Parents worry that giving Medicaid billing consent to the district might affect their child’s personal Medicaid benefits.

Recently, this issue was further complicated in some states by an interpretation of the Social Security Act that said a state must seek reimbursement from third parties before the school can bill for Medicaid.  This has been disproven, thankfully, because it would go against the provision in IDEA that requires free and appropriate public education.

3.  The burden of the cost report makes participating in Medicaid too hard for your district.

If you’ve dealt with school-based Medicaid, you have no doubt heard of the cost reporting requirement. Each year, school districts that seek Medicaid reimbursement must file a cost report, which is a reconciliation of what they spent on direct and indirect medical services for students in special education. This includes staff salaries, equipment costs, depreciations and various ratio calculations related to Medicaid eligibility. Much like when our personal income tax filings were a vast adventure of paper records and receipt collection, this cost report can fill district personnel with tremendous dread.

While the cost reporting process is rarely considered enjoyable, it provides an opportunity to reconcile what a district actually spent providing these crucial services to their special education students, and often provides additional reimbursement beyond what they received throughout the year. As with taxes, new technology has made the process of data collection and entry far easier than it was in the past.

Medicaid program integrity and viability

In the latest data available, Medicaid spending on school-based health accounts for about $4.5 billion1 of the of the entire Medicaid budget of approximately $400 billion2.

While this seems like a minimal expenditure when related to Medicaid as a whole, we must understand that the 2019 IDEA funding outlook is $13.5 billion3. In this context we can see what a valuable program Medicaid is for the overall funding of special education in our public education system.

There has been news coverage over the past few years about Medicaid fraud and abuse in various states. There is no doubt fraud can be extremely harmful to government assistance programs. However, it’s even more important that the improper reimbursements were caught, erroneously paid funds have been recouped and new measures are now in place to ensure it doesn’t happen going forward. Updated rules and regulations, innovations in technology, proper oversight and an emphasis on compliance will hopefully keep this program viable for many years to come.

Understand your district’s allowable reimbursement potential and see where you’re missing reimbursement opportunities. Learn how


1Medicaid.gov. (n.d.) Expenditure Reports From MBES/CBES. Retrieved from: https://www.medicaid.gov/medicaid/finance/state-expenditure-reporting/expenditure-reports/index.html

2Congress of the United States Congressional Budget Office. (2019.) The Budget and Economic Outlook 2019 – 2029. Retrieved from: https://www.cbo.gov/system/files?file=2019-01/54918-Outlook.pdf

3United State Department of Education. (2018.) Department of Education Fiscal Year 2019 Congressional Action. Retrieved from: https://www2.ed.gov/about/overview/budget/budget19/19action.pdf

Robert Ewen

Robert has worked in and around Medicaid in both the public and private sector for over 15 years. He currently serves as President of TSBS, a Texas-based special education consulting firm that strives to help Texas school districts gain much needed funding and reimbursement while ensuring the highest levels of compliance and integrity. Visit https://www.tsbs.cc/ to learn more.