A. Introduction
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). In contrast to the AFDC program where families could receive benefits for as long as they met the eligibility criteria, TANF benefits are time-limited. 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 and to utilize pre-TANF criteria to determine Medicaid eligibility, 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.(1) Moreover, the fact that states may deny Medicaid coverage to otherwise-eligible family heads who fail to work could potentially decrease the likelihood that Medicaid eligibility will be maintained for children of non-compliant families. Recent dramatic declines in Medicaid coverage serve to strengthen these concerns.
In general, the potential impact of the PRWORA is not well understood and it will likely be many years before the full effects of this law at the state and local levels become evident in public assistance and Medicaid recipient and expenditure data. Moreover, these data by themselves may mask the principal causes underlying enrollment trends. In the interim, however, federal and state policy makers will continue to face the immediate challenges of implementing PRWORA and responding to the short-term effects created by these changes. Thus, it is important to examine various aspects of the early implementation of the PRWORA at the state and local levels to begin to understand the full effects of this new law on low-income children and families as well as on their communities and environments.
Even before the passage of PRWORA, many states were experimenting with ways to increase participation in work by reforming their welfare programs through waivers of otherwise-applicable AFDC program rules.(2) 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, these programs are not well-understood both in terms of their actual operation or potential effects.
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, Department of Health
and Human Services, has four purposes:
It is important to note that the primary goal of this research is not to examine the work-related impacts of diversion programs and activities, but is instead to examine the (perhaps unanticipated) ramifications of implementing these programs/activities on Medicaid coverage for children and families.
The study will be carried out in two phases. The first phase involves the collection and analysis of descriptive data about diversion programs and/or diversion activities in all fifty states. The second phase involves a series of five case studies to facilitate the collection and analysis of qualitative data about state diversion programs and/or activities with respect to several key issues including: 1) the implementation and the actual operation of the diversion programs and/or activities, 2) the experiences of diversion participants, 3) the potential effects on Medicaid participation rates, and 4) the potential effects on health care safety net providers and community institutions.
This report presents the findings from the first phase of this research.
These findings are primarily based on the results of a fifty-state inquiry
of state approaches to diversion. Below, we provide a more detailed description
of the conceptual framework underlying this analysis and the methods used
to conduct the fifty-state inquiry. We then provide an overview of state
approaches to diversion and conclude this chapter with a roadmap to the rest
of the report.
The implementation of state-wide welfare reforms under the Section 1115 AFDC
waivers and PRWORA has spawned numerous new and innovative strategies for
providing assistance to families seeking cash assistance. One of the initial
challenges involved in trying to understand such sweeping reforms is developing
clear and consistent definitions of new approaches to providing assistance
to families. Thus, before presenting a detailed description of the methods
and results from the first phase of this study, we describe the conceptual
framework that guided our data collection and analysis.
Conceptual Framework: Formal and Informal Diversion Activities
The starting point for this analysis is a distinction between policies and programs that are explicitly designed to divert potential TANF recipients from receiving assistance and those that may divert potential recipients from receiving assistance even though that is not their primary purpose. We refer to programs and activities that fit into the former category as formal diversion activities and the latter as informal diversion activities.
We define formal diversion programs as activities that are explicitly designed to provide assistance to TANF applicants in an effort to eliminate their need for ongoing cash assistance. Building on earlier research by Holcomb et al. (1998), (3) we examine three specific diversion programs and activities that fit this criteria: (1) lump sum payments; (2) exploration of alternative resources and (3) mandatory applicant job search requirements.
These three types of diversion activities are similar but not identical in structure and purpose. Lump sum programs are designed to keep families with a short-term financial need from ever entering the welfare system. Mandatory applicant job search programs are designed to serve two purposes: (1) to encourage job ready recipients to find employment quickly in an effort to reduce their need for ongoing assistance and (2) to send a clear message that program expectations have changed. The exploration of alternative sources of support with families is intended to discourage families from applying for cash assistance if other assistance is available to them and to help them think more broadly about how they can draw upon resources in their communities and families during times of need.
We define informal diversion as diversion that occurs as a response to program rules and requirements that are intended to impose a stricter set of expectations on recipients even though a potential TANF recipient has not participated in those activities. For example, some families who know they will be expected to look for work immediately (or almost immediately) may choose to look for work and find it on their own, eliminating their need to apply for assistance. Other families may not apply for assistance because they anticipate that they will not be able to meet the higher expectations set forth by the new program. Others may choose not to apply because they assume they are no longer eligible under the new program rules.
The distinction between formal and informal diversion is not always crystal clear. For example, although we examine job search as a formal diversion program activity, it is likely that mandatory applicant job search programs result in both formal and informal diversion. For families who apply for assistance, receive some job search assistance and find employment before their formal application for cash assistance is approved, mandatory applicant job search functions as it was intended - as an explicit, formal activity to divert families from receiving ongoing cash assistance. However, for families who choose not to apply for assistance because of the job search requirement - either because they think the requirement is too onerous, are already employed or don't feel capable of meeting the requirement-- a mandatory job search requirement will be diverting recipients informally rather than formally.
Similar to mandatory applicant job search, the exploration of alternative resources can also act as a formal and informal means of diversion. Families who are linked with alternative community or family resources are formally diverted from receiving assistance because their needs have been met through alternative resources. However, families who expect that they will be required to explore alternative resources even though they do not believe those resources can meet their needs may choose not to apply for assistance and be informally diverted from receiving assistance.
The primary focus of this analysis is on formal diversion programs. However,
it is possible that diversion that occurs informally is having or will have
as large an impact on receipt of AFDC/TANF and/or eligibility for Medicaid
as formal diversion activities. Thus, whenever possible we include informal
diversion activities in our discussion although, for analytic purposes, we
have far less information at this point on this type of diversion than on
formal diversion programs and activities.
Pre-PRWORA Formal Diversion Activities
Prior to the passage of PRWORA, under the flexibility provided to states
through the Section 1115 waiver process, three states (Montana, Utah and
Virginia) began operating AFDC demonstration programs to provide "would-be"
AFDC recipients with assistance in the form of a lump sum payment. Four other
states (Georgia, Illinois, Missouri and New Hampshire) received approval
through the Section 1115 waiver process for demonstration programs that required
applicants to participate in job search activities as a condition of eligibility.
Wisconsin began to explore alternative resources with applicants for assistance
when it implemented its Self-Sufficiency First waiver statewide in January
1996.
Current Diversion Programs and Activities Are Not Well Understood
As the emphases on moving recipients into the labor market quickly and on reducing the time families spend receiving assistance have heightened, diversion programs have become an increasingly common component of state efforts to reform their welfare programs. However, these programs are not well-understood in terms of their design, actual operation, or potential effects. In particular, state efforts to divert families from ever receiving welfare benefits could also increase the likelihood that these families are ineligible or, if eligible, fail to be considered for Medicaid eligibility.
Given the lack of consistent knowledge about what state diversion programs and activities "look like," a necessary first step involves developing descriptive information about diversion efforts in all fifty states and the District of Columbia. To fully understand the design and structure of state diversion programs, information is needed on: (1) how states are structuring their formal diversion efforts, (2) how decisions are made regarding the appropriateness of participants for diversion, (3) what choices TANF applicants have regarding their participation in diversion activities, (4) what kinds of support services are available, (5) what trade-offs/penalties are involved in participating in diversion, and (6) what provisions, if any, are in place to ensure that eligibility for Medicaid is pursued for diverted TANF applicants.
The two-phase structure of this study is deliberate in light of the gaps
in knowledge. The first phase will develop the information and knowledge
necessary to support the case study approach. The second-phase case studies
build on the first phase and will continue the exploration and documentation
of the important issues and questions involved in state efforts to implement
diversion programs/activities as part of welfare reform.
The information presented in this report is based on telephone conversations with program administrators in 50 states and the District of Columbia. Information was collected using a flexible topical guide covering a broad range of areas of interest. An introductory letter with specific information about the project and a series of follow-up telephone calls were used to identify the appropriate state-level officials knowledgeable about the states' diversion programs and activities and to schedule a time to discuss the issues outlined in the topical guide. All respondents received a copy of the topical guide prior to the scheduled discussion. Conversations ranged from 45 to 90 minutes depending upon the range and intensity of the states' diversion programs and activities. Prior to talking with state administrators, project staff reviewed all approved Section1115 AFDC waivers and state TANF plans.
The topical guides were structured to collect information about a range of policies and program activities that are intended to divert TANF applicants. The three types of formal diversion programs/activities identified earlier were explored in the guides: lump sum payments, linkage with and/or exploration of alternative resources, and mandatory applicant job search. Information on other work-related conditions of TANF eligibility (such as attending an employment-oriented orientation) and other non-work related requirements, such as signing a personal responsibility agreement was also gathered. Additional issues that were discussed included: how links with Medicaid are being addressed, what kinds of data collection efforts regarding diversion programs are being undertaken, and whether the state had any indicators of the success of diversion programs and activities.
Within these broad topic areas, particular areas of inquiry focused on: 1) the goals of the state's diversion programs, 2) the specific provisions and requirements of the diversion programs, 3) the populations targeted for diversion, 4) the payback requirements and/or other trade-offs associated with receiving lump sum cash payments, 5) the length of time diversion programs have been in effect, 6) the kinds of supports for work and transitional benefits that are available for families who are diverted, 7) the mandatory or voluntary nature of the diversion programs, and 8) the specific procedures for encouraging and/or ensuring that diverted persons apply for Medicaid.
With respect to informal diversion activities, we anticipated that obtaining
meaningful information about the operation of such activities during
conversations with state officials would be difficult and the results speculative
at best. Consequently, we did not include a discussion of this issue in our
conversations. As noted above, however, although our ability to consider
informal diversion activities at this point is limited, the phenomenon of
informal diversion is probably an important factor in the changing circumstances
of low-income families. The most appropriate sources of information about
informal diversion are likely to be diverted TANF applicants and their families
and friends. The case studies to be conducted in phase two of this study
will thus provide the opportunity to examine this important issue more closely.
This section presents a general overview of the results of our inquiries into formal state diversion programs and activities. Subsequent chapters address these results in more detail.
As illustrated by Table I-1, 31 of the 50 states and the District of Columbia (4) from which we were able to gather information on diversion programs and activities have implemented at least one diversion activity in at least part of the state. Twenty states are operating lump sum payment programs with three additional states planning to implement such programs in 1998. Seventeen states are operating lump sum payment programs statewide, two states are operating them less than statewide and in one state, although the state law allows lump sum payment programs, counties have the discretion to decide whether or not to operate such a program.
Seven states are using an aggressive approach to help potential TANF recipients identify alternative resources that may ameliorate their need for TANF benefits. Sixteen states require TANF applicants to engage in active job searches before their application for assistance is approved. In 15 of those 16 states, applicant job search is mandatory statewide while in the one remaining state the requirement has only been implemented in a few counties.(5)
As Table I-2 illustrates, most states that are operating diversion programs have implemented only one of the three formal diversion activities examined for in this study. In 12 states, lump sum payment programs are the only diversion activities in place while in 10 states, the only diversion activities in place are mandatory applicant job searches. There are no states in which the exploration of alternative resources is the only formal diversion activity. With respect to the states that have implemented just two of the three formal diversion activities, the states' choices are distributed fairly evenly among the three combinations: three states have lump sum payment programs and alternative resources; one state has alternative resources and mandatory applicant job search, and two states have lump sum payment program and mandatory applicant job search. Only three states, Idaho, Maryland, and Wisconsin have implemented all three formal diversion activities. In these states, all three diversion activities have been implemented statewide.
Table I-3 suggests a few interesting regional patterns (6) in terms of which states have chosen to pursue which of the three formal diversion activities. The West Region has the greatest concentration of both lump sum payment and job search requirements with almost 60 percent and almost 40 percent of the states in this region respectively establishing these programs. The South Region shows a similar concentration of both lump sum payment and job search requirements with almost 60 percent and 40 percent of the states in this region respectively establishing these programs. By contrast, the Midwest Region shows less of a dichotomy between these two activities with almost 50 percent of the states in this region establishing lump sum payment programs and almost 50 percent establishing job search requirements. Finally, the Northeast Region shows the lowest concentration of lump sum payment and job search requirements with just 10 percent of the states in this region establishing either of these programs.
One explanation for this regional pattern with respect to lump sum payment diversion could be the fact that Utah and Virginia both had lump sum programs in place relatively early, i.e., 1993 in Utah in the West Region and 1995 for Virginia in the South Region. It is difficult to speculate why states in the Northeast Region have not pursued diversion programs to the extent that the other three regions have. One possible explanation is that several of the states in this region (most notably Vermont, Massachusetts and Connecticut) implemented comprehensive reforms prior to the implementation of PRWORA and have not changed the directions of their reforms since PRWORA was passed.
The subregional(7) configurations also presented in Table I-3 suggest a few patterns that add precision to the regional analysis. For example, in the South Region, the states with lump sum payment programs and job search requirements are clearly concentrated in the South Atlantic Subregion; this subregion includes Virginia. In addition, Kentucky, the only state with lump sum in the East South Central Subregion, borders on Virginia. To the extent that states look to neighboring states for policy innovations, Virginia's early establishment of lump sum payment diversion may explain this subregional pattern, at least with respect to lump sum payments.
In the Midwest Region, the states with lump sum and job search requirements
are clearly concentrated in the West North Central Subregion - this subregion
borders on the Mountain Subregion of the West Region. Given that both subregions
of the West Region have the highest concentrations of lump sum and job search
requirements, this proximity may explain this subregional pattern.
The remaining chapters of this report examine formal state diversion programs and activities in much greater detail.
Chapter Two focuses on lump sum payment programs. In this chapter, we explore how states determine applicants' eligibility for lump sum payments, for what purposes these payment may be used, and what costs/penalties are associated with participating in lump sum diversion. Chapter Three describes how states have altered their intake processes to help TANF applicants explore the availability and access alternative resources. Chapter Four examines mandatory applicant job search programs. In this chapter we explore how states have defined their job search requirements, who is expected to fulfill these requirements and how much discretion caseworkers have in granting exceptions to these requirements.
Chapter Five explores the potential impact of formal or direct diversion
programs and activities and of diversion that occurs informally on the Medicaid
eligibility of diverted TANF applicants. Chapter Six concludes with a discussion
of state efforts to assess the success of their formal diversion programs
and activities. In this chapter we also assess the implications of the findings
reported here and, in light of these implications, discuss the methodological
approach for the second phase of this research which will focus on how state
diversion programs and activities, both formal and informal, are being
implemented, and how these diversion activities are affecting low-income
families particularly with respect their eligibility for Medicaid.
2. Department of Health and Human Services. (1997). Setting the Baseline: A Report on State Welfare Waivers. Washington, D.C.: U.S. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, June. General Accounting Office (1997). Welfare Reform: States' Early Experiences with Benefit Termination. Washington, D.C.: GAO/HEHS-97-74, May
3. Holcomb, P., Pavetti, L., Ratcliffe, C. & Reidinger, S. (1998). Building Employment Focused Welfare Systems: Workfare and Other Work-Oriented Strategies in Five States Washington, DC:The Urban Institute, March.
4. Hereinafter the District of Columbia shall be included as a state when summary numbers are given about state diversion activities and programs, e.g., we will refer to these results as 31 of 51 states have implemented at least one diversion activity in at least part of the state
5. Twelve additional states require applicants to participate in a work-related orientation and/or register with the job service prior to benefit authorization.
6. Regional analyses of state-based or state-specific decision making is a common approach to examining state policy making, and the significance of variations therein, in the political science literature. The four broad regions and nine sub-regions used in this study represent the commonly-accepted approach to dividing up" the country. See Bradshaw, M., Regions and Regionalism in the United States, University Press of Mississippi:Jackson MI and London, 1988, at p.4. Because the premise of regional analysis is that states in proximity to each other will exert an effect on each others' policy making, Alaska and Hawaii are usually not included in regional analysis and thus we have excluded them as well. The purpose of the sub-regional analysis is add another level of geographic precision to the analysis. The following are the four regions. West: WA, OR, CA, NV, ID, MT, WY, UT, CO, AZ, NM; Midwest: ND, SD, NE, KS, MN, IA, MO, WI, IL, IN, MI, OH; South: TX, OK, AR, LA, MS, AL, TN, KY, WV, VA, DE, MD, NC, SC, GA, FL; Northeast: NY, PA, ME, VT, NH, RI, MA, CT, NJ. See Figure I-1 .
7. The West region is
composed of two subregions: Pacific and Mountain; the Midwest region is composed
of two subregions: West North Central and East North Central; the Northeast
is composed of two subregions: Middle Atlantic and New England, and the South
region is composed of three subregions: West South Central, East South Central
and South Atlantic. See Figure I-2.