The Personal Responsibility and Work Opportunity Reconciliation Act of 1996
(P.L. 104-193, PRWORA) ended the individual entitlement to welfare benefits
under Aid to Families with Dependent Children (AFDC), established by the
Social Security Act of 1935. Under the new law, states are provided with
a block grant to establish a new program, Temporary Assistance for Needy
Families (TANF). Although states have considerable flexibility to design
their TANF programs, PRWORA requires states to orient their TANF programs
toward employment and to provide assistance to families for a maximum of
sixty months. In addition, within two years of the enactment of PRWORA, states
must require that TANF recipients participate in work and work-related activities
to be eligible for benefits.
The new law also "de-links" Medicaid and welfare benefits. Eligibility for
Medicaid is no longer automatic for TANF recipients and individuals can be
eligible for Medicaid without having to be eligible for TANF. Although states
are required to establish separate eligibility criteria for Medicaid using
pre-TANF criteria, there are concerns that the complexities of TANF
implementation, especially the shift to a time-limited, work-based assistance
system, could result in the failure of many otherwise-eligible children and
families to apply, or be found eligible, for Medicaid. Recent dramatic declines
in Medicaid coverage serve to strengthen these concerns.
Even before the passage of PRWORA, many states were experimenting with ways
to increase participation in work by reforming their welfare programs. One
way in which states sought to encourage work was to divert individuals who
were either job-ready or had other sources of income from becoming welfare
recipients by offering them a one-time financial payment and/or job placement
assistance as an alternative to enrollment in welfare. While these and other
efforts to divert families from the welfare system appear to be an increasingly
common component of states' welfare to work efforts under PRWORA, these programs
are not well-understood both in terms of their actual operation or potential
effects on Medicaid eligibility.
In an effort to better understand state efforts to divert families from welfare and the potential interactions with Medicaid eligibility, this research, funded by the Administration for Children and Families, and the Office of the Assistant Secretary for Planning and Evaluation, Department of Health and Human Services, has three broad goals: 1) to describe the range of state diversion programs and how these programs are being implemented, 2) to determine whether and how states are ensuring that families diverted from cash assistance will nonetheless apply for Medicaid and 3) to determine how diversion-related changes might affect families, particularly with respect to their eligibility for Medicaid, and the community-based entities that serve them.
This report presents the findings from the first phase of this research that
involved the collection and analysis of descriptive data about diversion
programs and activities in all 50 states and the District of Columbia. Data
collection was accomplished primarily through a review of state documents
and structured conversations with state officials.
Diversion programs are broadly understood as formal efforts to address the
immediate needs of families seeking cash assistance in ways that avoid enrolling
these families in TANF. The diversion programs implemented by states can
be characterized as three distinct types.
Lump sum payment programs are designed to keep families with a short-term
financial need from ever entering the welfare system with the provision of
one time lump sum payment. Mandatory applicant job search programs
require job searches as a condition of TANF eligibility and are designed
to encourage recipients to find employment quickly to eliminate their need
for cash assistance. The exploration of alternative resources is intended
to discourage families from applying for cash assistance if other sources
of support in their communities and from their families are available to
them.
Diversion from cash assistance takes place both formally--as described
above--and informally--as the result of program rules and requirements
that discourage families who might otherwise be eligible for cash assistance
from applying. Although the primary focus of this research is on formal
diversion, wherever possible informal diversion activities are discussed
as these harder-to-document activities may have just as great an impact as
formal diversion.
Thirty-one states have implemented at least one diversion program. As
Table I-1 illustrates, 20 states are operating lump
sum payment programs with three additional states planning to implement such
programs in 1998. Sixteen states require TANF applicants to engage in active
job searches before their application for assistance is approved. Seven states
are using an aggressive approach to help TANF applicants identify alternative
resources.
As Table I-2 illustrates, most states operating formal
diversion programs have implemented only one program. Twelve states have
implemented just lump sum payment programs and 10 states have implemented
just mandatory applicant job searches. Only three states have implemented
all three formal diversion programs.
Diversion programs are not equally distributed across the country. As illustrated
by Table I-3, the Northeast has the fewest with 10
percent of the states having diversion programs. In the West and South, 60
percent of the states have lump sum payment programs and 40 percent have
mandatory applicant job search. In the Midwest, 50 percent of the states
have lump sum payment programs and 50 percent have mandatory applicant job
search.
Under lump sum payment programs in effect in 20 states, caseworkers screen
TANF applicants to determine if a lump sum payment can address effectively
the immediate reason for the TANF application. Caseworkers must either find
potential recipients of a lump sum payment eligible for TANF, or have gathered
enough information to presume TANF eligibility. In almost one-half of the
states, eligible applicants must have work-related needs directly affecting
their ability to obtain or maintain employment such as loss of transportation
due to needed car repairs. In the remaining states, eligible applicants can
have a range of short-term or emergency needs such as overdue rent or utilities
bills and child care problems. Accepting the lump sum payment in lieu of
TANF benefits is not mandatory.
Lump sum diversion may affect the recipient's Medicaid application. All 20
states report using a joint application for TANF and other benefits such
as Medicaid and Food Stamps, but only eight states require that the TANF
application be completed for lump sum diversion. In the other states, caseworkers
only collect enough information to presume the likelihood of TANF eligibility
- the TANF application may not be completed or may be shown as withdrawn.
This raises the possibility that the Medicaid application may likewise remain
incomplete.
As illustrated by Table II-1, 23 state lump sum payment
programs (three additional states planning to implement their program during
1998 are included) are analyzed on a range of characteristics. These
characteristics vary across the states and include: how often one can apply
for lump sum payment, amount of payment, how payment can be used, how payment
is made, and the potential costs associated with receipt of lump sum payment.
Most programs are relatively new, having been developed since 1996, and are
operated on a statewide basis.
For example, most states prefer to make cash payments to recipients, although
vouchers and third party payments are the preferred method in a few states.
Maximum amounts are generally multiples of the applicable monthly TANF benefit
and range from a low of $606 in Florida to a high of $3052 in
Minnesota. Most states stipulate a period of ineligibility for TANF
benefits after receipt of a lump sum payment during which reapplication triggers
penalties such as a requirement to repay the lump sum or a reduction in the
lifetime limit of TANF benefits. A few states impose these penalties or "costs"
automatically on the lump sum recipient.
States can be characterized as making it easy for TANF applicants to be diverted
where the lump sum payment program policies use relatively broad eligibility
criteria, allow lump sum payments to be used for more than just work-related
needs, and do not impose stringent repayment requirements or other penalties
on lump sum payment recipients. States can also be seen as deliberately limiting
the number of participants in their lump sum payment programs when program
policies use very specific eligibility criteria, limit the use of lump sum
payments to work-related needs, and impose onerous repayment requirements
and automatic penalties.
The components of lump sum payment programs may indicate that the states
view such programs primarily as supports for obtaining or maintaining employment,
or suggest that the states view their program as means to expand emergency
assistance for short-terms needs of families without reducing these families'
lifetime TANF limits. States can opt for more or less oversight on how recipients
use the lump sum payments or on how programs are administered at the county
level.
Seven states are making a concerted effort to explore alternative
resources with applicants before proceeding with an application for TANF.
These efforts are seen as a natural outgrowth of the new concept of welfare
benefits as a temporary, last resort option rather than the only option for
families in need. Rather than being guided by specific policies, as in other
types of diversion programs, this type of diversion is implemented
through changes in the interaction between caseworkers and applicants. With
the exception of Wisconsin, states generally offer applicants the option
of pursuing alternative resources rather than requiring them to do so before
applying for TANF. Applicants for whom these efforts are made are likely
to be those with relatively minor, short-term needs.
Instead of merely documenting need, welfare caseworkers attempting to link
TANF applicants with alternative resources must probe deeper to uncover the
underlying circumstances. The successful implementation of efforts to link
TANF applicants with alternative resources requires more sophisticated
interviewing skills and a broader understanding of available community resources
than has traditionally been required of caseworkers.
As illustrated by Table IV-1, 16 states require
TANF applicants to look for work as a condition of eligibility for benefits.
An additional 13 states require TANF applicants to participate in other
employment-related activities such as a work-related orientation or registering
with the job service for employment as a condition of eligibility. These
requirements reinforce the new emphasis on employment instead of the provision
of cash assistance. In this study, only mandatory applicant job search is
considered a formal diversion program because the immediate and intensive
search for a job is designed to eliminate families' need for assistance.
Although states had experimented with work-related requirements prior to
PRWORA, the emphasis of mandatory applicant job search on finding a job as
quickly as possible is unique.
As illustrated by Tables IV-2 and
IV-3, mandatory applicant job search programs are
analyzed on a range of characteristics. These characteristics include: the
target populations, the exempt populations, good cause exception for failure
to job search, specific job search requirements, the amount of assistance
for the job search, and the level of documentation required.
For example, most states with mandatory applicant job search requirements
require all adult applicants to meet this requirement. Only one state does
not require one-parent families and only two states do not require caretakers
or guardians to look for work as a condition of eligibility. Most states
allow exemptions from the work requirements, although there is considerable
variation in how broadly or narrowly exemptions are defined. Common exemptions
include families with children under age one and those who are disabled or
not
Ajob
ready.@
Disability is defined various ways by states as is job readiness, which is
often determined by caseworkers as part of their evaluation rather than based
on objective criteria. In 10 of the 16 states, caseworkers have the discretion
to make exceptions in addition to the formal exemptions. This discretion
allows them to take into account individual circumstances that may not be
explicitly addressed through formal policy.
Job search requirements differ in structure
and in the expected level of effort. Most requirements are defined as a time
period during which job search must take place, a specified number of employer
contacts, or a combination of the two. Requirements range from two contacts
in 40 to 45 days in Alabama to as many as 10 per week for four weeks in Missouri,
Indiana, and Nevada. In most states, the time period coincides with the time
allowed to process the TANF application. Nearly half the states have the
same requirements statewide, while the rest give local offices discretion
to set requirements within a broad range. Ten states also provide
Agood
cause@
exceptions for applicants who are required to look for work but are unable
to comply with job search requirements by unforeseen circumstances.
Eleven states provide applicants with assistance
to fulfill job search requirements. Types of assistance include job contacts
and leads, access to a resource room where applicants can prepare resumes
and conduct a job search, classes on job search skills such as resume writing
and job interviewing, and auxiliary services such as transportation and child
care. Eight states report that they require specific documentation to verify
that applicants are meeting job search requirements.
Mandatory applicant job search programs are
characterized by considerable devolution of decision making to local offices
and by substantial worker discretion. These programs will probably become
more prevalent as states' compliance with PRWORA requirements proceeds and
are likely to divert more potential TANF recipients both formally and informally.
In well-designed programs providing the assistance that applicants need to
look for work, applicants will be diverted formally because they find employment.
On the other hand, if programs provide minimal support and require relatively
stringent job search activities that are unrealistic in terms of the abilities
of most potential TANF applicants, mandatory applicant job search programs
may result in substantial, and possibly undesirable, informal diversion.
PRWORA not only provided states with considerable
flexibility in designing their welfare programs but also "delinked eligibility
for Medicaid from cash assistance." A family must be found eligible for Medicaid
independent of their eligibility for cash assistance. PWRORA created a new
Medicaid eligibility group of low-income families with children by adding
Section 1931 to the Social Security Act. Section 1931 generally provides
that all families who meet the basic requirements of a state's AFDC program
in effect on July 16, 1996 are to be considered eligible for Medicaid.
Section 1931 gives states three options to modify
Medicaid eligibility criteria. First, states can increase income and resource
standards by the inflation index or lower these standards to May 1988 levels.
Second, states can continue 1115 AFDC waiver provisions that modify income
and resource standards. Third, state can establish less restrictive methodologies
to liberalize income and resource standards. The third option is very broad
and essentially gives states carte blanche to liberalize Medicaid eligibility
criteria. Section 1931 also allows states to continue existing Title XIX
"waivers" expanding transitional Medicaid assistance benefits.
Table V-1 summarizes
state options to affect Medicaid eligibility post-PROWRA and the conditions
for exercising these options. Additional options include Section 1115 Medicaid
waivers and poverty-level-related expansions of coverage for pregnant woman
and children. It is beyond the scope of this study to document states choices
regarding Medicaid eligibility criteria. However, while most states report
that eligibility for TANF means automatic eligibility for Medicaid, and all
but two states report using a joint Medicaid/TANF application, the issue
of Medicaid eligibility for nonTANF recipients raises important questions
for diversion.
Diverted families are, by definition, not TANF
recipients; their eligibility for Medicaid is determined by the state's Medicaid
criteria. For lump sum payment recipients, this payment is counted as income
in the month of receipt and will likely render recipients ineligible for
Medicaid since most states' income standards are relatively low. To prevent
this loss of benefits, a state can opt to modify income standards to disregard
the lump sum payment as income.
Mandatory applicant job search means that many
families will get jobs quickly and never receive cash assistance. This result
also means that these families will be Medicaid-eligible for one or two months
at most and will immediately lose their Medicaid coverage due to earned income.
These families will also lose the opportunity for transitional Medicaid
assistance as they will not have received Medicaid for three months (this
will also be true for lump sum recipients). States can ameliorate these results
by opting to disregard the first three months of earned income.
Table V-2 summarizes
the state options for assuring Medicaid eligibility for diverted families.
These options primarily affect coverage for adults and adolescents who are
not eligible for Medicaid coverage outside of Section 1931 (i.e., poverty-level
pathways). If diversion programs are successful, then a growing number of
adults who previously would have been covered under Medicaid will be uninsured.
While states can easily opt to change their income and resources standards
under Section 1931, such changes would have to apply to all families and
could represent serious financial commitments for state budgets in terms
of expanded Medicaid eligibility.
A few states report having addressed the issues
involved in assuring Medicaid eligibility for diverted families. There continue
to be uncertainties, however, about the actual availability and consequences
of these strategies. Additional guidance from HCFA is needed on this
subject.
The implementation of diversion programs could
also affect access to Medicaid. Because the operation of these programs typically
diverts families before a joint TANF/Medicaid application has been completed,
there is potential for the Medicaid application to
Afall
through the
cracks,@
(i.e., not be processed). Informally diverted families may not be aware of
their ability to apply for Medicaid without applying for TANF
assistance.
Nearly all of the states report that linking
diverted TANF applicants with Medicaid is not perceived to be a major issue.
State have probably not considered the substantive implications for Medicaid
eligibility posed by diversion programs, and believe that using the joint
application form suffices to address the delinking of Medicaid and cash
assistance.
Assuring Medicaid eligibility for diverted families
will involve addressing the following implementation and policy questions:
1) how well diversion programs are implemented in terms of Medicaid applications
"falling through cracks; 2) how aggressively states are promoting the
availability of Medicaid eligibility independent of cash assistance; 3) how
well-informed state policymakers are about the relationship between TANF
policy and Medicaid policy and about their 1931 options for easing Medicaid
eligibility requirements; and 4) how willing states are to expand Medicaid
coverage to include participants in diversion programs.
The study findings reveal that the three recognized
formal diversion programs are widespread and implemented in a variety of
ways. States know little about the effects of their diversion programs, however,
both because most programs are so new, and because data collection efforts
are lacking or in early stage of development. Important questions remain
about the effectiveness of these diversion programs as well as the implications
of their operation for Medicaid eligibility.
For example, questions about lump sum payment
programs include: 1) which lump sum payment programs are particularly effective
for what types of TANF applicants, 2) how well can caseworkers manage the
implementation of these relatively discretionary and multifaceted programs,
and 3) what types of lump sum payment programs are best suited for the goals
of formal diversion.
Questions about mandatory applicant job search
include: 1) how do workers determine who is and is not required to look for
work as a condition of eligibility, 2) what fraction of applicants find
employment before their application for assistance is processed, 3) how do
the non-cash benefits available to families differ depending on whether an
applicant finds employment before or after his or her application for assistance
is approved, 4) what is the relationship between the level of job search
activity required and/or the amount of job search assistance provided and
the proportion of applicants who find employment, and 5) what happens to
applicants who get discouraged and do not complete the application
process.
A common set of data elements about the diversion
program and the
state=s
Medicaid program is needed to fully document and analyze the effects. However,
most states do not collect common data. In the case of applicant job search,
for example, diverted cases generally would be coded as incomplete or denied
with no specific reference to participation in and the outcome of participation
in an applicant job search program. Most states report that they would measure
the success of the diversion programs in terms of the number or percentage
of total applicants diverted and if or for how long they then stay off the
TANF rolls, but little data of this type are available.
Phase two of this study will involve 1) Case
studies in five states to collect information on how the diversion
programs work in practice and their effects on families from the point of
view of administrators, field staff, participating families, and safety net
providers, as well as assess the information available on informal diversion,
and 2) Follow-up telephone conversations with Medicaid policymakers and
program administrators in the 31 states with lump sum payment and/or mandatory
applicant job search programs to obtain more information on how
states have addressed issues of Medicaid eligibility in designing and
implementing these diversion programs.
This research, building on the findings of phase
one, will address four major areas of inquiry: 1) describe and examine the
actual implementation of diversion programs and identify potential consequences
of diversion for low-income families, particularly with respect to entry
into the job market and access to Medicaid; 2) describe state policies regarding
Medicaid eligibility for applicants diverted through lump sum payments and
mandatory applicant job search, 3) examine whether and how the potential
changes in Medicaid enrollment rates associated with diversion efforts might
affect traditional health care safety net providers, and 4) examine potential
strategies for monitoring changes in Medicaid enrollment rates as well as
the effects of these changes over time.
Formal efforts to divert potential TANF recipients
from receiving ongoing assistance represent one of many approaches states
have implemented to shift to a more work-oriented, transitional system. These
programs are clearly in their infancy but have the potential to affect large
numbers of families. This research is creating a knowledge base that can
provide a foundation for additional evaluation and monitoring of these program
and activities.