Changes made under the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996 have direct and indirect consequences on the Medicaid program. PRWORA not only provided states with considerable flexibility to design their welfare programs but also de-linked eligibility for Medicaid from cash assistance provided through state TANF programs. Thus, persons must be found eligible for Medicaid independent of their receipt of cash assistance. This change and existing rules governing Medicaid eligibility have important consequences for recipients who are diverted from the welfare rolls through formal diversion programs or who are diverted indirectly as a result of program changes that discourage families from applying for assistance.
In this section we explore in depth the potential impact on Medicaid coverage
of the two most common formal diversion activities: (1) providing an option
to persons to receive a lump sum cash payment in lieu of a TANF benefit;
and (2) requiring persons to conduct job search prior to authorizing TANF
benefits. We also briefly discuss how eligibility for Medicaid would be affected
for families who are diverted through state efforts to link them with alternative
resources and those who choose not to apply for TANF because they find the
new program rules too onerous and/or expect that they may not be eligible
for benefits. Before doing so, it is essential to examine fully the changes
made to Medicaid under the 1996 welfare law and the consequences of these
actions for determining eligibility for Medicaid.
Prior to the passage of PRWORA, persons who were eligible for cash assistance
under the former Aid to Families with Dependent Children (AFDC) program were
enrolled automatically in Medicaid. However, under PRWORA individuals and
families become eligible for Medicaid independent of their eligibility for
cash assistance under a state's TANF program. In other words, receipt of
TANF no longer entitles persons to Medicaid coverage and ineligibility for
TANF benefits does not necessarily make persons ineligible for Medicaid.
The Creation of Section 1931 of the Social Security Act
While the 1996 welfare law de-linked eligibility for Medicaid from TANF,
the law also created a new mandatory Medicaid eligibility group of low-income
families with children by adding Section 1931 to the Social Security Act.
Section 1931 requires that all persons who meet the basic requirements of
the states' AFDC programs in effect on July 16, 1996 (with certain options
described below) be considered eligible for Medicaid. Thus, persons who meet
the AFDC family composition rules (i.e., deprivation requirements) and the
income and resource standards using the methodologies in place in a state
as of July 16, 1996 should be eligible for Medicaid. Section 1931 was created
to ensure that persons who would have been eligible for benefits prior to
the passage of PRWORA would continue to be eligible for Medicaid, especially
if states adopted more restrictive eligibility standards for TANF than had
been in place for their AFDC programs.
Continued Reliance on AFDC Income and Resource Standards and Methodologies
While the 1996 welfare law repealed AFDC, replacing it with TANF, certain references to the AFDC program remain intact with respect to determining eligibility for Medicaid. In particular, the 1996 welfare law retained AFDC income and resource standards and methodologies for purposes of determining Medicaid eligibility.
Section 1931 requires states to establish income and resource standards for Medicaid eligibility at the levels in effect as of July 16, 1996, with certain options. The state may lower its standards to May 1, 1988 levels, an option available to states since passage of the Family Support Act of 1988 (PL 100-485). The law also permits states to increase standards by a percentage no greater than the percentage increase in the consumer price index for all urban consumers. These income and resource standards are used to determine whether a family would have received an AFDC payment as of July 16, 1996.
Section 1931 also permits the state to use less restrictive AFDC income and
resource methodologies than the methodologies used under the State plan in
effect as of July 16, 1996. Income and resource methodologies are the methods
(e.g., disregards, exclusions, allocations) used to establish the amount
of a family's countable income and resources. The Health Care Financing
Administration (HCFA) has defined a methodology as less restrictive if additional
individuals are made eligible for Medicaid and no individuals who are otherwise
eligible are made ineligible.(1) Thus, although
Section 1931 requires states to use the AFDC income and resource standards
in effect on July 16, 1996, this section also gives the states considerable
flexibility in defining Medicaid much more liberal eligibility criteria due
to the states' unfettered ability to use less restrictive income and resource
methodologies. For example, states could choose to disregard 50 percent of
all earned income or to disregard the total value of one car when determining
Medicaid
eligibility.(2)
Authority to Continue Certain IV-A Waiver Provisions
Under Section 1931(d), states also have the option to continue indefinitely
certain provisions of IV-A waivers, which had been previously approved as
part of the states' Section 1115 welfare reform demonstration projects, that
affect Medicaid eligibility. These IV-A waivers must have been submitted
prior to August 22, 1996 and approved by July 1, 1997. As interpreted by
HCFA in a February 1997 letter to the states, the allowable waivers provisions
to be continued are income and resources standards and methodologies, deprivation
requirements (e.g., the 100-hour rule), and caretaker requirements. While
states can also change the income and resources standards and methodologies
through the state Medicaid plan amendments, the only mechanism for changing
the deprivation and caretaker requirements is by continuing these provisions
of existing IV-A waivers.
Transitional Medicaid Linked to Section 1931 Eligibility
Since 1990 states have been required to provide transitional Medicaid benefits
of up to one year to persons who lost AFDC eligibility as a result of increased
hours of, or increased income from, employment. To be eligible for transitional
Medicaid benefits, a person must have received AFDC in at least three of
the preceding six months. With passage of the 1996 welfare law de-linking
Medicaid eligibility from TANF, the trigger for transitional Medicaid benefits
became the receipt and loss of 1931 Medicaid eligibility due to an increase
in hours or earnings rather than the receipt and loss of eligibility for
cash benefits under TANF; eligibility now depends upon receipt of Medicaid
under Section 1931 in at least three of the preceding six months. Prior to
the enactment of PRWORA, many states had used the IV-A waiver process associated
with the welfare reform demonstrations to extend the availability of transitional
Medicaid benefits to 24 months and to change the eligibility requirement
of three months to one month. These waivers are known as Title XIX waivers.
Unlike the IV-A waivers, Section 1931 does not give states the authority
to continue their Title XIX waivers. States may, however, seek new Title
XIX waivers in order to continue expanded transitional Medicaid benefits
and the relaxed eligibility standard for recipients of cash assistance.
Medicaid Eligibility Outside of Section 1931
In addition to Section 1931 there are other eligibility routes to Medicaid for low-income families, the most significant of which are the so-called poverty-level pathways. The 1996 welfare law did not alter these pathways. The poverty-level pathways provide Medicaid coverage to pregnant women and children based solely on their income, and in a few states, resources; there are no family composition requirements. Federal Medicaid law specifies certain minimum income standards for these populations although states may exceed the federal requirements at their option. At a minimum, states must provide Medicaid to pregnant women and children up to age six with incomes up to 133 percent of the federal poverty level. Children between six and 19 born after September 30, 1983 with incomes up to 100 percent of the federal poverty level also qualify for Medicaid on a mandatory basis. Additionally, states have the option to provide Medicaid coverage to pregnant women and infants up to age one with incomes at or below 185 percent of the federal poverty level. In general, these additional pathways provide considerable access to Medicaid for poor children,(3) but with the exception of pregnant women, provide no expanded access for adults.
Seventeen states have implemented "comprehensive health care reform
demonstrations" by using the Section 1115 waiver process to gain HCFA approval
for reorganizing their state Medicaid programs into mandatory managed care
programs for most Medicaid beneficiaries. As part of this waiver process,
six states have expanded Medicaid eligibility to include a portion of low-income
adults up to the federal poverty level in both single parent and intact
families.(4) The approach
to expanding Medicaid eligibility through 1115 waivers, however, involves
a very challenging and demanding process for states as well as substantial
financial considerations and it is not likely that many states will use the
1115 waivers as a mechanism to expand Medicaid eligibility. Thus, Medicaid
eligibility for adults as parents and caretaker relatives will continue to
be tied primarily to the requirements set forth under Section 1931.
The provisions of Section 1931 are intended to ensure that, at a minimum,
families who would have been eligible for Medicaid prior to the implementation
of PRWORA will continue to be eligible for Medicaid post-PRWORA. Section
1931 also grants to the states considerable flexibility to modify their income
and resources methodologies - states are free to use this new flexibility
to expand access to Medicaid by, in effect, liberalizing the eligibility
criteria. (Table V-1 provides an outline of the
states' post-PRWORA options for affecting Medicaid eligibility.) With respect
to formal diversion programs, states must consider two questions: 1) how
do their formal diversion programs affect Medicaid eligibility for families,
and 2) what changes in states' Medicaid policies might be necessary to counteract
the negative effects of diversion programs. Our preliminary analysis of state
efforts to divert families from the welfare system indicates that the
implementation of diversion programs is likely to make numerous families,
primarily the adult members, ineligible for Medicaid unless the states decide
to take advantage of their flexibility under Section 1931 to expand resource
and income
disregards.(5)
To date, 19 states have implemented lump sum payment diversion programs as components of their TANF programs, with several additional states anticipating implementation of lump sum payment programs this year. (See Table I-1 and the discussion in Chapter 2) Thus, the opportunity to affect Medicaid eligibility for a substantial number of persons is significant.
In general, states that have implemented lump sum payment diversion programs do not view these diversion programs as interfering with continued access to Medicaid. In fact, interviews with state officials revealed quite to the contrary. States reported that they were ensuring Medicaid coverage for families who would be eligible under Section 1931 or through one of the other eligibility pathways. All but one of the states use joint TANF/Medicaid application forms.(6) In addition, several states reported that they have retained categorical eligibility for Medicaid. (A state may provide categorical eligibility if a state is able to adopt policies under Section 1931 that match its TANF program.) In these cases, persons who are eligible for TANF are automatically eligible for Medicaid. The states generally reported that persons diverted under lump sum payment programs must have been found eligible for TANF.
Despite assurances from states that Medicaid eligibility has not been impacted
adversely by diversion programs, issues associated with lump sum payment
diversion programs were uncovered that suggest potential areas where problems
may arise. Further analysis also exposed uncertainty and lack of clarity
about to use the provisions of Section 1931 to address these potential problems.
To explore these issues further this section describes how a lump sum payment
diversion program may impact Medicaid in general, reviews federal guidance
on Medicaid in light of changes made under the 1996 welfare law, considers
one state (Utah) that has addressed Medicaid issues in light of its diversion
program, and examines one state (Arizona) that is weighing available options
against the impact of a lump sum payment program on Medicaid eligibility
before proceeding with the implementation of its diversion program.
The Importance of Rules Affecting the Treatment of Lump Sum Diversion Payments
In designing lump sum payment diversion programs, states may choose to provide families with a cash payment, voucher, or both. In the review of states with lump sum payment programs, 18 of 22 states have opted to provide primarily cash payments directly to families. In these cases, a state must then subject the lump sum diversion income paid to families to the income standards and methodologies authorized under Section 1931 of the 1996 welfare law. While a state must count all earned and unearned income, including a lump sum payment, in determining eligibility for Medicaid vis-à-vis a states July 16, 1996 AFDC income and resource standards (i.e., 1931 Medicaid eligibility), a state has greater flexibility in establishing less restrictive income methodologies. Thus a state may choose to disregard completely a lump sum diversion payment and do so by indicating this income methodology in their state Medicaid plan.
Generally a lump sum payment is counted as income in the month in which it
was received. While income standards vary significantly by state, a lump
sum diversion payment is likely to exceed the states July 16, 1996 AFDC income
standards, thereby making an individual and/or family receiving lump sum
diversion payments ineligible for Medicaid under Section 1931. As just noted,
to prevent these losses, a state must decide to disregard the lump sum diversion
payment as income and show this disregard in its state Medicaid plan. Parents
and caretaker relatives, the majority of whom are women, are the most likely
to be affected adversely by the states' failure to disregard lump sum diversion
payments; they are left without an alternative route to Medicaid. In addition,
older adolescents in the household who do not fall within the age limits
for the poverty-level pathways could also lose their only basis of Medicaid
eligibility. (7) Therefore,
the states can assure that individuals who opt to participate in a lump sum
payment diversion program do not forego eligibility for Medicaid for themselves
or members of their families by using the state plan amend approach.
The Potential Loss of Transitional Medicaid
Possibly of even greater long-term consequence for diversion recipients is
the potential loss of transitional Medicaid. For example, assume that an
individual accepts a lump sum diversion payment during the first month and
finds a job during the second month. The income earned during the second
month must be counted toward Section 1931 Medicaid eligibility. This earned
income is likely to exceed Section 1931 income standards, thereby rendering
the adult (usually a mother) ineligible for Medicaid; the children (except
older adolescents) would likely be eligible for Medicaid under one of the
poverty-level pathways. Additionally, because the adult/caretaker relative
secured employment during the second month and became ineligible for 1931
Medicaid due to excess income, he/she also would not be eligible for transitional
Medicaid benefits having failed to be 1931-eligible for at least three of
the six preceding months, as required to qualify for transitional Medicaid
benefits. As will be discussed below, many states may not be fully aware
of their options under Section 1931 to remedy these problems.
Federal Guidance on Structuring State Medicaid Programs
The Health Care Financing Administration (HCFA), the agency with responsibility for administering the Medicaid program, has not issued any guidance to states specifically addressing diversion programs in general or lump sum payment programs in particular. Rather, HCFA has issued guidance to states on the implementation of Section 1931 of the Social Security Act and the continuation of AFDC demonstrations conducted under Section 1115 of the Social Security Act.(8) While not directly related to diversion programs this guidance is instructive.
With regard to determining Medicaid eligibility under Section 1931, HCFA interprets the requirements of this section to mean that states must use the income and resource standards and methodologies, which were in effect on July 16, 1996, unless they choose one of the following three options. (9) States can lower income standards to those in effect on May 1, 1988; states can raise income and resource standards in accordance with increases in the consumer price index
since July 16, 1996; and states can choose more liberal methods to determine the amount of a family's countable income and resources. A fourth option for states is to continue certain provisions of existing welfare reform demonstration 1115 AFDC waivers, provisions that affect deprivation requirements as well as income and resource methodologies. As noted above, however, HCFA recently promulgated a regulation that gives all states the option under Section 1931 to waive the deprivation requirements.(10)
For the small number of states that started their lump sum diversion payments under a welfare reform demonstration waiver, HCFA's policy regarding the continuation of these IV-A waiver terms may be especially important. HCFA issued a letter to states clarifying that states may continue to use IV-A waivers only for three purposes: states may continue waivers of 1) income and resource standards and methodologies, 2) deprivation requirements, (11) and 3) requirements that a child live with a specified relative.(12) States may not, therefore, continue waivers that fall outside one of these three categories. For example, a state may not continue a waiver that deems a person to be an AFDC recipient. According to HCFA's interpretation, the AFDC program has been repealed - except for purposes of determining Medicaid eligibility. Thus, IV-A waivers are allowed to continue only to the extent that they affect eligibility criteria.
HCFA also has stated that the 1996 welfare law does not provide states with
the authority to continue Title XIX waivers indefinitely as is the case for
IV-A waivers. For example, if a state wishes to continue to provide an additional
12 months of transitional Medicaid benefits to individuals who lose cash
assistance because of earnings from employment, or continue to disregard
the three-month requirement, the state must contact their HCFA project officer
and seek approval for implementing such a continuation. The continuation
is effective only until the expiration of the welfare reform/AFDC demonstration
and the state would not be required to demonstrate budget neutrality. However,
any new Title XIX waivers, post-August 22, 1996, will be subject to the budget
neutrality test usually associated with Section 1115 waivers.
State Options to Address Impact of Diversion Programs on Medicaid Eligibility
States can ameliorate the potential losses of Medicaid eligibility by applying less restrictive income methodologies to income received by a family. A state's willingness to utilize such methodologies probably depends on the cost to its Medicaid budget. Addressing the potential losses in Medicaid eligibility - for traditional and extended benefits - has various financial consequences, depending on the number of persons rendered newly eligible for Medicaid as a result of the disregard. To reduce the loss of traditional Medicaid eligibility for persons who accept a lump sum diversion payment, a state may disregard a specific type of income (i.e., lump sum diversion payment). Most states with lump sum payment diversion programs have specified maximum lump sum payment amounts. With the maximum amount of the disregard known, a state could estimate the cost to its Medicaid budget by forecasting the number of persons who would be made newly eligible for Medicaid by the disregard. This disregard may have greater appeal because the scope of the disregard is limited, both by the amount and by the population, i.e., only persons electing a lump sum diversion payment would be eligible for the disregard. Using the income disregards in this manner is perhaps the easiest and simplest way to address the Medicaid eligibility problems associated with lump sum payment diversion programs.
On the other hand, the use of the income disregards to address Medicaid eligibility issues associated with obtaining a job immediately, either before receiving TANF assistance or shortly after receiving a lump sum payment, presents a more complicated solution. States may be more likely to resist addressing the potential losses in transitional Medicaid for employed persons because of the greater financial exposure likely to result from such an action. The challenge here is to ensure that an individual retains Medicaid eligibility for three months in order to qualify for transitional Medicaid. A state wishing to apply a more liberal income methodology for employment-related income must apply it uniformly across all potentially Medicaid-eligible persons. In other words, a state that disregards a certain amount of earned income to alleviate the loss in transitional Medicaid benefits for persons participating in a lump sum diversion payment program, e.g., disregarding entirely the first three months of earned income, must allow all persons to disregard that amount of earned income in determining eligibility for Medicaid under 1931. An alternative approach to income disregards could involve the continuation of the Title XIX waivers changing the three-month requirement to one month.(13) In order to use Title XIX waivers to benefit diverted TANF applicants, the states may need to apply for new Tittle XIX waivers. This approach is discussed in more detail below. Table V-2 provides an outline of state options for preserving Medicaid eligibility within the context of state formal diversion programs.
As the following discussion about the experiences of two states with their
lump sum payment diversion programs illustrates, states have a range of choices
to make about how to assure continued Medicaid eligibility under formal diversion
programs. Table V-2 represents the range of these
choices. This discussion also illustrates that HCFA's guidance with respect
to how states can structure their Medicaid programs since the implementation
of welfare reform may have important implications for lump sum payment diversion
programs and recipients' eligibility for Medicaid.
With the exception of Utah and Virginia, which have operated lump sum diversion programs for several years, the experiences of most states with implementing lump sum payment programs are quite recent. Because of its relatively long history with lump sum payment diversion programs, this section explores how Utah has addressed Medicaid eligibility issues within context of their lump sum payment diversion programs. In addition, this section explores how one state - Arizona - has reassessed its lump sum payment diversion program in consideration of its consequences on Medicaid coverage. Additionally, Arizona's approach to its lump sum payment diversion program is examined because of its proactive consideration of the impact on Medicaid eligibility.
To understand how a state with a lump sum payment diversion program has addressed
the Medicaid eligibility problems that may result from providing diversion
payments, project staff examined the state with the first and longest-standing
lump sum payment diversion program. Utah's lump sum payment diversion program
dates to 1993.
Utah: Initially Utah secured an AFDC waiver under Section 1115 of the Social Security Act to provide a one-time diversion payment to cover three months of assistance to meet basic or special needs. In return for a diversion payment, applicants agreed to have their application for AFDC denied. Without a waiver, this action would likely result in a denial of Medicaid as well.(14) Because states cannot deny Medicaid to persons who would otherwise qualify for Medicaid in the absence of a welfare reform demonstration, the state sought a waiver to assure continued Medicaid eligibility. More specifically, Utah requested that the lump sum diversion payment be considered an AFDC payment and that recipients of these payments be deemed to be AFDC recipients for three months. In other words, Utah sought to treat persons who elected to receive a diversion payment as if they were AFDC eligible for three months, and, therefore, otherwise eligible for Medicaid, because of the categorical eligibility requirements in effect at the time. If recipients are employed or find employment within this three month window, this would also make them eligible for transitional Medicaid benefits. Utah also received a Title XIX waiver to extend the availability of transitional Medicaid benefits from 12 to 24 months. Thus, Utah evidently has chosen to promote going to work with the decision to enhance the availability of transitional benefits.
Shortly before the enactment of PRWORA in the summer of 1996, Utah received approval for a five year extension of its AFDC 1115 waiver. Utah continues to operate its lump sum payment diversion program and to guarantee transitional Medicaid by treating persons who receive diversion payments as if they were qualified for Medicaid, instead of AFDC, for three months, i.e., continuing the terms of its original IV-A waiver with the adjustment for the delinking of Medicaid and cash assistance/AFDC. For example, a person who receives a diversion payment in January would remain eligible for Medicaid during the months of January,
February, and March. If a person finds employment by the third or fourth month (e.g., March or
April) then he/she would be eligible for transitional Medicaid benefits. (Given that Utah's lump
sum diversion program is targeted to employed or immediately employable persons, most recipients are likely to meet this criteria and be eligible for transitional Medicaid.) If a person has no earned income by the fourth month then his/her continuing eligibility for Medicaid would be determined under Section 1931 rather than transitional Medicaid benefits rules.
Given HCFA's subsequent interpretation of the statutory provisions regarding
the continuation of AFDC waivers as described above, it is not clear whether
other states can use this approach to ensure eligibility for Medicaid and
transitional Medicaid assistance for persons receiving assistance under lump
sum diversion programs. The use of this "deeming" strategy may not be consistent
with current HCFA policy that has limited the continuation of IV-A waiver
terms to the three provisions described above. States may, instead, have
to consider other options, such as a Title XIX waiver of the three-month
eligibility requirements, in order to continue to guarantee transitional
Medicaid benefits for recipients of lump sum diversion payments. However,
as also noted above, the conditions of continuing availability of these Title
XIX "waivers" are not clear either. State will probably have to seek guidance
on an individual basis from HCFA regarding their efforts to make Medicaid
eligibility criteria complementary to participation in diversion programs.
Arizona: Arizona has decided to reconsider implementation of its lump sum payment diversion program because of the expected adverse consequences on Medicaid eligibility for persons receiving lump sum diversion payments. While Arizona passed a state law authorizing the implementation of a lump sum payment program, the state has not implemented the program because of two unresolved issues: 1) how to ensure Medicaid eligibility for recipients of lump sum diversion payments, and 2) how to ensure eligibility for transitional Medicaid benefits, which Arizona has extended from 12 to 24 months, for recipients of lump sum diversion payments.
The state envisions a person receiving a lump sum diversion payment would also qualify for Medicaid by virtue of the state choosing to disregard the entire lump sum diversion income in the month of receipt. However, if the lump sum recipients is successful in securing or retaining a job (the primary goal of the lump sum payment diversion program), his/her earned income may exceed 1931 eligibility levels and lead to the immediate loss of Medicaid thus jeopardizing eligibility for transitional Medicaid. The state does not wish in effect to penalize persons diverted through a lump sum payment program by creating the scenario whereby transitional Medicaid benefits are not accessible. According to one state official, while the state wants to move persons to work, achieving this goal through the lump sum payment diversion program could be "the worst thing to do [in terms of their eligibility for transitional] Medicaid."
To address this issue, federal and state interviewees suggested that Arizona
may be considering at least three options: 1) the continuation of certain
terms of the IV-A waiver provisions, 2) the submission of a Title XIX waiver
to HCFA to provide transitional Medicaid benefits for persons who are diverted
and have less than 3 months of receiving Medicaid, and 3) the submission
of an 1115 waiver expanding the Medicaid coverage groups for the near poor.
In effect, the state appears to be considering a choice between providing
more Medicaid benefits for a smaller group of beneficiaries and providing
some Medicaid benefits to a larger group of new beneficiaries. HCFA guidance
suggests that it may be difficult for the state to achieve its desired outcomes
with respect to transitional Medicaid benefits under the first two options.
The third option would provide Medicaid coverage to additional persons (primarily
working poor families), including persons who may elect to be diverted with
lump sum diversion payment assistance, but would not necessarily assure
eligibility for 24 months of transitional Medicaid benefits.
As the advent of welfare reform has meant an increased emphasis on work, required work participation rates for TANF recipients, and more stringent lifetime limits on TANF benefits, states have devised new ways to encourage work among TANF applicants and to avoid enrolling applicants in TANF. Sixteen states require applicants to complete job search requirements prior to authorizing TANF benefits. (See foregoing discussion in Chapter Four.) The requirements of the mandatory applicant job searches vary from three days of work activities for applicants to several weeks of job search. Another approach adopted by seven states involves aggressive efforts to link TANF applicants with resources other than TANF assistance, i.e., alternative resources, sufficient to meet the needs that prompted the TANF application. (See foregoing discussion in Chapter Three.) This section examines the potential impact of both mandatory applicant job search requirements and alternative resources approaches on Medicaid eligibility.
While states may impose job search requirements on applicants as a condition of eligibility for TANF assistance, the states must immediately proceed to determine Medicaid eligibility for the applicant and members of her family. While all but two states use a joint TANF/Medicaid application it is not clear that persons who apply for benefits would complete the joint application before fulfilling their job search requirements. It is frequently true that their TANF applications are not processed until their job search responsibilities have been fulfilled. In addition, a TANF applicant may be discouraged by the job search requirements and simply drop out of the program without fully pursuing her eligibility for Medicaid. All of these characteristics of mandatory applicant job searches create numerous circumstances whereby a family's Medicaid application could "fall through the cracks," i.e., not be processed in a timely matter, not be processed at all, or not even be completed.
Similar to the above-described losses in transitional Medicaid eligibility potentially faced by persons who participate in lump sum payment diversion programs, persons who secure jobs fairly quickly will likely jeopardize their eligibility for Medicaid. By requiring job search activities at a much earlier stage in the TANF application process,(15) increased numbers of applicants are probably finding work before they are able to accumulate three months of Medicaid eligibility. In most cases earnings from a job would disqualify an applicant from eligibility for Medicaid under 1931 unless the state has considered taking advantage of its ability to choose more liberal income disregards. Given that few states appear to be aware of the value of so structuring their income and resource disregards, the likely effects of mandatory applicant job search programs will be to reduce the number of persons who would otherwise have received Medicaid. It is also likely that current state policies requiring work-related activities during the TANF application process will reduce the number of persons able to qualify for transitional Medicaid benefits as TANF recipients will accumulate fewer months of Medicaid eligibility before finding a job.
The use of alternative resources as a method for formally diverting TANF
applicants could have much the same effect on eligibility for Medicaid and
transitional Medicaid as the above-described job search requirements. It
is likely that a family receiving alternative resources assistance will shortly,
if not immediately, become ineligible for Medicaid, particularly in states
with relatively low income and resource standards for Medicaid eligibility.
The families whose short-term needs can be met appropriately through alternative
resources will almost certainly have an already-employed or about-to-be-employed
head of household. On the other hand, assessing the appropriateness of
alternative resources for a family in lieu of TANF assistance may likely
involve a more comprehensive assessment of Medicaid eligibility for all family
members and result in Medicaid enrollment for at least the children.
Informal or indirect diversion refers to the situations where families do not even apply for TANF assistance because either they think that they are not eligible or they believe that they would be unable to comply with program's work-related requirements. The unwillingness to apply for TANF assistance will likely foreclose applying for Medicaid for many persons. In all but two states, a joint application form is used for both programs; a few states reported that they may be developing both joint and separate applications. Persons suspicious or fearful about applying for TANF assistance may be unlikely to go to the same office and complete the same application form to apply for Medicaid as they would have to complete to apply for TANF. In addition, given the potential for diverging eligibility criteria between TANF and Medicaid, as well as the poverty-level eligibility options for pregnant women and children, there will be an increasing number of persons eligible for Medicaid but ineligible for TANF. The ripple effects of informal or indirect diversion may also cause these persons to be reluctant to go to the welfare office and complete a Medicaid application with the result that more otherwise-eligible adults and children will remain unenrolled in Medicaid.
Few data about the effects of informal diversion were collected during the
state interviews and it is difficult to speculate about how many people might
be affected or what the characteristics of these families might be. People
who are informally or indirectly diverted face the same Medicaid-related
issues as TANF applicants formally diverted by job search requirements. Because
informally-diverted families may include large numbers of Medicaid-eligible
but unenrolled children, the potential size of this phenomenon merits further
inquiry.
In nearly all of the states contacted for this study, the question of ensuring the linkage between diverted TANF applicants and Medicaid was not perceived to be a major issue. There may be several explanations for the widespread perception that maintaining this linkage does not present a problem.
First, as noted above, all but two states reported the use of a joint application form for TANF and Medicaid, and all states reported that the Medicaid applications are completely processed notwithstanding a denial, or delay in the processing, of the TANF applications. Second, many states reported aggressive efforts to maintain a commitment to Medicaid by training staff to recognize the linkages for TANF applicants and otherwise emphasizing the importance of Medicaid.
Third, the potential Medicaid eligibility problems for participants in lump sum payment diversion programs, i.e., whether and how the lump sum diversion payment may be counted as income, have not been clearly understood or documented. This widespread lack of awareness may reflect the failure of the state agencies or entities responsible for administering the TANF and Medicaid programs to assess and resolve potential conflicts between the requirements of these two programs. Notably, only one state - Arizona - appeared to be grappling with the issue of Medicaid eligibility problems potentially associated with the implementation of their lump sum payment programs. Fourth, states may not have fully recognized the substantial flexibility created by Section 1931 that allows them to liberalize relatively easily the criteria for Medicaid eligibility.
Finally, the consequences for Medicaid eligibility of requiring TANF applicants as well as TANF recipients to find employment more quickly have likely not been carefully considered. The fact that there will now be greater numbers of low-wage workers who are uninsured because they could not access Medicaid or transitional Medicaid prior to becoming employed is probably obscured by the larger problem of the growing numbers of low-income workers with no access to health insurance. Indeed, the importance of Medicaid as a source of health insurance coverage for low-income working persons transitioning from cash assistance has been well documented. It appears that the current trend toward diverting TANF applicants has the potential to negate substantially the goal of this policy. As states consider how to address Medicaid eligibility for diverted persons, they will have to assess and prioritize their desired health policy goals: whether to offer extended Medicaid coverage for a few beneficiaries or to increase Medicaid coverage for large groups of low-income people.
This review of diversion programs and their effects on Medicaid eligibility has raised both implementation and policy issues. First, the question of whether diverted TANF applicants, both formal and informal, will "fall through the cracks" with respect to their Medicaid eligibility depends upon how well diversion efforts are implemented and how aggressively the states promote the availability of Medicaid eligibility independent of TANF eligibility. Implementation- related questions would include: 1) are Medicaid applications processed immediately and without delay notwithstanding the status of the TANF application, 2) are Medicaid applications completed for diverted persons who do not complete TANF applications, 3) has there been sufficient outreach about the fact of Medicaid eligibility independent of TANF eligibility, and 4) are separate Medicaid applications available for persons who do not wish to apply for TANF assistance. At this point, it is difficult to assess how well diversion programs are being implemented with respect to these implementation issues.
Second, the question of whether certain diverted TANF applicants, e.g., lump sum payment recipients, will be able to establish or retain their eligibility for Medicaid, especially transitional Medicaid, depends upon how well-informed state policymakers are with respect to the relationship between TANF policy and Medicaid policy and their options with respect to affecting Medicaid eligibility as outlined in Tables V-1 and V-2. Policy-related questions would include: 1) how have the states taken advantage of their ability to liberalize the income and resource methodologies under Section 1931 and targeted these changes toward diversion recipients, 2) whether and how states have sought to continue allowable IV-A waivers with an understanding that such IV-A terms might ensure Medicaid eligibility for diversion recipients, and 3) whether states have sought to continue or seek new Title XIX waivers with an understanding that these existing waivers can ensure eligibility for additional transitional Medicaid benefits but probably only for recipients of TANF assistance. At this point, however, it appears that most states are not aware of these compelling policy issues and choices, and it is not clear how this lack of awareness will be addressed by the states or what the effects will be on recipients of diversion assistance.
The implications of these policy and implementation issues are discussed in more detail in the final chapter of this report.
2. States now have the option to terminate Medicaid for adults and heads of households who fail to meet the TANF work requirement. Poverty-level pregnant women and children who are not heads of household are specifically exempted from this option.
3. The recently-enacted federal Children's Health Insurance Program (CHIP) helps states provide health insurance for children under 19 in families whose income does not exceed 200 percent of federal poverty level.
4. States with implemented 1115 waivers: Alabama, Arizona, Arkansas, Delaware, Hawaii, Kentucky, Maryland, Massachusetts, Minnesota, New Jersey, New York, Ohio, Oklahoma, Oregon, Rhode Island, Tennessee, Vermont. Not all of these waiver programs are statewide. Delaware, Hawaii, Minnesota, Oregon, Rhode Island, and Tennessee have expanded eligibility to certain categories of low-income adults.
5. On August 7, 1998, a final regulation, sponsored by HCFA and ACF, was published that revised the existing "100 hour rule" and thereby allowed states the option of providing Medicaid coverage to two parent families in which the principal wage earner was working more than 100 hours per month. In an August 17, 1998 letter to state Medicaid directors, Sally Richardson noted that this regulatory change gives states another tool to coordinate the two programs (i.e., Medicaid and TANF) and that this change allows states to provide Medicaid to virtually all TANF recipients and to continue that health coverage after a parent has found employment.
6. Louisiana is the only state with only a separate application for Medicaid. Rhode Island, and perhaps Massachusetts, Mississippi, and some California counties, have developed both a joint and separate application.
7. This would be true in states that have opted not to cover either older poverty-level children or Ribicoff kids.
8. HCFA letters to state Medicaid directors dated February 5, 1997 and September 22, 1997.
9. HCFA letter to state Medicaid directors dated February 5, 1997.
11. One of the commonly-waived deprivation requirements is the so-called "100 hour rule." Thirty states had waived this requirement under their existing welfare reform demonstrations and, to the extent that states choose to continue this waiver under their TANF programs, such states would have greater flexibility to expand Medicaid eligibility under Section 1931. Now all states can, if they so choose, provide Medicaid to two parent families in which the principal wage earner works more than 100 hours per month by virtue of the federal regulation promulgated on August 7, 1998.
12. HCFA letter to state Medicaid directors dated September 22, 1997
13. It is possible, however, that existing Title XIX waivers will not benefit persons who have not received TANF assistance as the terms of these waiver refer to receipt and loss of cash assistance as the trigger for transitional Medicaid. Existing Title XIX waivers and Section 1931 may provide guarantees of transitional Medicaid to two different populations. Conversations with Cindy Mann at the Center for Budget and Policies Priorities in May 1998 and Joan Peterson, Health Care Financing Administration, May 1998.
14. At the time the waiver was submitted, Medicaid was provided categorically to persons who received cash assistance under AFDC. Failure to receive AFDC would terminate categorical eligibility.
15. Prior to the 1996, persons were not required to participate in the JOBS program until they became recipients.