HEALTH CHAIRS PROJECT

HEALTH CHAIRS PROJECT

Issue Brief: Welfare Reform, Medicaid and Health Coverage

July, 1999

CONTENTS
Welfare Reform and Medicaid
Trends and Estimates
Working the Split
Devolution and Delinking
Ways to Maintain and Expand Coverage
State Solutions
Opportunities for Committee Chairs
Making and Breaking the Welfare-Medicaid Link: RISKS and REMEDIES
Additional Resources Available on line

Welfare Reform and Medicaid

Has welfare reform unnecessarily left some needy families without health coverage? Thanks to a split between Medicaid and welfare that was designed to protect needy families, states may be missing a chance to use medical assistance to help support the move from welfare to work.

Trends and Estimates: Advocates read a disturbing trend in the early numbers. HCFA data indicate 1.25 million people lost Medicaid between 1995 and 1997, a period that included state-level welfare reforms and the first year of national reform. Medicaid rolls are shrinking at a time that states are expanding eligibility. Early reports from individual states show that the loss of Medicaid is particularly likely to affect children and their families. Some children and adults who qualify for Medicaid have been dropped or improperly barred from Medicaid rolls, or have not applied as a result of welfare changes that should not affect their Medicaid eligibility.

Many more people have left welfare than have left Medicaid. Nonetheless, the drop in Medicaid may signal a widening gap in coverage. Unfortunately, most people leaving welfare do not get jobs with employer-sponsored insurance. A Kaiser Family Foundation study that looked at individual state reports in the first years of reform found that fewer than 25% of families leaving welfare for work reported having employment-based health coverage. Using a simulation model based on HCFA and Census data, the Lewin Group (in a May, 1999 study by for Families U.S.A) estimated that 675,000 people lost insurance in 1997 as a result of welfare reform.

Working the Split: Before welfare reform, recipients getting Aid to Families with Dependent Children (AFDC) automatically qualified for Medicaid. Now the two programs have very different requirements.

Key provisions of the 1996 Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) were designed to preserve pre-welfare reform Medicaid eligibility standards while separating medical assistance from income support. If welfare reform left families without other resources, so the thinking went, at least they would still have coverage. Instead, a booming economy has helped states drain welfare rolls without draconian cuts. As a result, the split that was built as a safeguard can complicate state attempts to reposition the Medicaid program to help boost the transition to work.

Unlike AFDC, the new welfare program, Temporary Assistance for Needy Families (TANF), is time-limited. It may include conduct requirements such as job search, school attendance, child support cooperation and even keeping children's immunizations current. Although Medicaid is still a social insurance program with eligibility based on need and family structure, the new welfare restrictions can inadvertently affect coverage. With state agencies pressed to keep up with changes under way in welfare and child health insurance programs, Medicaid coverage for families can get lost in the shuffle.

This result is not inevitable. The PRWORA includes a provision, the "Medicaid savings clause" that actually allows states to make Medicaid more widely available than in the past. And welfare reform even included money for states to use to adjust administrative systems and do outreach to low income families so that delinking would not cause a drop in Medicaid enrollment (unfortunately, few states were able to use these funds). Despite these precautions, families seem to be falling through the Medicaid cracks as a result of TANF.

Why should states seek out Medicaid-eligible families? Isn't it a boon to state budgets when the Medicaid rolls shrink? Maybe it is time to decouple thinking about Medicaid from welfare, and consider the usefulness of medical assistance in its own right. Health care promotes job retention; illness contributes to job loss. And postponing needed care eventually results in more costly care. Instead of being a casualty of welfare reform, Medicaid coverage can be a tool for helping people make the transition to work. Decoupling the programs lets states use Medicaid to help low wage workers enter a job market that may not offer them needed health insurance.

Devolution and Delinking

Why did welfare reform lead to a drop in Medicaid? What can states do to make sure eligible people stay covered? People seem to be losing coverage at each step in the process in which welfare eligibility is determined or lost, even though there are rules that are supposed to protect Medicaid coverage.

Here are some danger points in the process and tips for states to avoid them:

1) Welfare avoidance: The new system effectively discourages people from applying for welfare. States need to ensure that people can apply for Medicaid and TANF separately.

2) Diversion programs: Families are encouraged to look elsewhere for help and only use TANF as a last resort. States may formally require parents to show they have looked for work, or may informally discourage applications. Successful welfare diversion may mean Medicaid applications are turned away as well, even though diversion should not be applied to Medicaid. Federal Medicaid rules require that the right to apply to Medicaid without delay must be clearly spelled out to applicants. In most cases, states must act within 45 days of the time a Medicaid application is filed. If a single application is used for both programs, it must still be processed for Medicaid alone.

3) Time limits and sanctions: People who lose welfare involuntarily as a result of time limits or sanctions may not know that Medicaid eligibility usually continues for them and always goes on for their children. States are allowed to end Medicaid for non-pregnant adults as a sanction for refusal to work or refusal to cooperate with medical support requirements (a 1997 survey found 16 states doing this), but Medicaid can't be withdrawn as a sanction for most other reasons that apply to TANF. Pregnant women and children can never lose Medicaid because of a family sanction.

4) Voluntary termination: As people successfully make the move to employment, they can often get transitional Medicaid coverage. If they don't know this, they may fail to report the reason they have left the Medicaid or welfare program. States are actually required to determine whether eligibility continues, whether this is requested or not, but they often do not. In many cases, even if the wage earner no longer qualifies, income requirements for children are higher and they may continue to be eligible.

5) Changes in SSI disability definitions: Certain children with disabilities and persons with substance abuse-related disabilities are no longer eligible for SSI and therefore have also lost Medicaid as a result of the 1996 law. Coverage was restored to some groups in 1997, but not all. For people who lose Medicaid coverage with the end of SSI disability payments, Medicaid eligibility should be redetermined to see whether they qualify under other categories.

Making the new system work requires a tricky balance of harmonizing and separating intake systems. Coordination is needed to take advantage of opportunities to enroll people and to reduce administrative overhead. On the other hand, unlinking the programs means that new efforts may be needed to reach people outside the TANF system. States face challenges in supporting families as they leave welfare, reaching out to families eligible for Medicaid, and ensuring that administrative systems--and staff--conform to new policy goals.

Ways to Maintain and Expand Coverage

The 1996 PRWORA and the 1997 Balanced Budget Act (BBA) include a number of features that states can use to extend or even increase Medicaid coverage among eligible groups. PRWORA also includes resources to help states meet the administrative demands of delinking described above. States must act affirmatively to take advantage of these changes

1) Section 1931 Option: Income Disregards: Under Section 1931, which sets Medicaid eligibility at pre-TANF welfare levels, the state may effectively expand their Medicaid programs by choosing less restrictive financial methodologies. States can disregard portions of income and certain resources in determining Medicaid eligibility to effectively cover working families with children at higher income levels. For example, they may disregard a certain amount of income, (such as the first 50% of poverty level), disregard income for a period of time (such as the first six months for someone newly entering employment) or ignore certain assets (such as a car needed for transportation to school an work). States should be sure to disregard lump sum diversion payments so that they do not inadvertently make individuals ineligible for Medicaid while avoiding welfare.

2) Waive 100-Hour Rule: States that did not have pre-reform welfare waivers of this rule could not extend income support to two-parent families if one parent worked more than 100 hours per month. As of August, 1998, all states may offer Medicaid to two-parent families regardless of how much a parent works as long as they are otherwise eligible.

3) Presumptive Eligibility and Continuous Coverage for Children: Under the BBA of 1997, states have the option to cover children in Medicaid continuously for 12 month periods regardless of changes in family circumstances. States can also allow providers to begin serving children they presume are eligible while their Medicaid applications are processed. This assures continuity for the children and the health plans, and makes it easier for families to get children enrolled.

4) Transitional Medicaid Assistance: Allows families on Medicaid who would otherwise lose coverage because of increased earnings to remain covered for up to 12 months. Families must first have received Medicaid for three months.

5) Delinking: The provisions that delinked Medicaid and TANF also set aside $500 million in federal funds, available to states at an enhanced matching rate of 75-90%, to use for outreach and revamping Medicaid enrollment systems. As a result of slow start-ups, not all of this was spent and efforts are under way to ake it available beyond its planned expiration in August, 1999.

State Solutions

Some states have already put effective new systems in place.

South Dakota uses a joint application for TANF and Medicaid and combines supervision and program administration, but uses separate computer systems for TANF and Medicaid eligibility, ensuring that Medicaid eligibility will be determined separately.

Utah received an unusual exception which allows it to treat persons who receive lump sum diversion payments as if they were qualified for Medicaid, rather than TANF, for three months. This not only assures that they are covered for three months, but makes them eligible for transitional Medicaid even if they find work within that time.

Georgia and Florida use educational brochures and videos as part of a concerted outreach effort to make sure potential recipients know about transitional Medicaid.

Ohio, Tennessee and Nebraska all have automated social services eligibility systems that help ensure that eligible persons are offered Medicaid no matter how they enter the system.

Pennsylvania disregards 50 percent of a Medicaid recipient's earned income when determining whether a parent who becomes employed remains eligible under Section 1931. New York disregards as much of a recipient's earnings as necessary to allow them to retain Medicaid until earnings reach the poverty line.

Rhode Island and the District of Columbia have used Section 1931 to raise eligibility to 185 and 200 percent of FPL respectively. This brings eligibility for the entire family in line with CHIP, making it likelier that whole families will enroll.

Connecticut eliminated work-history and work-hour requirements, making two-parent families that met all other requirements eligible for Medicaid. The state excludes $9,500 on equity value of a car, disregards earnings of dependent children who are students, disregards $100 on child support payments, sets a $3,000 resource limit and disregards earned income up to 100 percent of the federal poverty level.

Ohio and Oklahoma have eliminated resource standards, and Kansas doesn't count the value of a car when determining Medicaid eligibility.

Opportunities for Committee Chairs

Welfare reform and the 1997 Balanced Budget Act gave states a good deal of latitude in constructing welfare programs. New freedom to experiment with welfare together with the constraint of keeping in place most Medicaid program rules creates challenges. States need to take full advantage of opportunities provided by devolution, while watching out for gaps that can open up when the welfare and medical assistance programs are delinked.

Much of the detailed program design will be done by state human services agencies. Lawmakers have to be alert to constituent concerns that point to problems in implementation. Knowing the obstacles the agencies face may help you monitor their approach to delinking and let you assess what resources they may need to succeed. If they are not already taking advantage of all the opportunities, you may be able to suggest ways that Medicaid eligibility can be part of a strategy to help people gain greater independence.

Here are some things chairs should know about their own state's health and human services system:

(1) Does it make sure eligible people are offered Medicaid independent of welfare? How are the two systems of eligibility determination connected? Applicants for welfare should have their Medicaid eligibility checked, no matter what the outcome of their welfare cases.

(2) Do recipients understand their eligibility at points in the system where they are vulnerable for termination? Because of the many changes, a special effort at outreach and education of recipients and the general public may really pay off. Systems need to be put in place that generate automatic reminders at points where people are likely to drift out of the system. Case workers need training and clear guidelines on how Medicaid now works.

(3) Has the state taken advantage of new Medicaid provisions, such as section 1931, that let states bring more low-income working families into the program? Other opportunities include coordination with the Child Health Insurance Program, and transitional Medicaid assistance.

Making and Breaking the Welfare-Medicaid Link: RISKS and REMEDIES
Risk Point in TANF	Threat to Medicaid	Possible Remedy
People do not apply for TANF.	People do not apply for Medicaid.	Public information and outreach. Use different forms for withdrawing TANF application and Medicaid application.
TANF application denied.	Individual or family members may be eligible for Medicaid but ineligible for TANF.	Separate Medicaid application process; follow up on all application initiated regardless of TANF eligibility determination.
TANF diversion.	People do not follow up on application they have begun.	Separate Medicaid qualification process. Process all application for Medicaid regardless of TANF application status.
Time limits to eligibility.	People assume limits also apply to Medicaid.	Inform people of continued Medicaid eligibility. Stagger Medicaid eligibility review so it is clearly delinked from TANF.
TANF terminated due to sanctions.	Entire family loses Medicaid.	Determine Medicaid eligibility for each member. Most TANF sanctions do not affect Medicaid, even for the principal adult.
TANF ended due to employment.	Employment may be in non-insured workplace.	Offer transitional coverage. Redetermine eligibility for all family members: children may still be covered even though the income is too high for parental coverage to continue.
Voluntarily leave TANF, request "case be closed".	Medicaid also closed, although family might still be eligible.	Require separate request for stopping Medicaid benefits. Stagger eligibility review.
Revised SSI standards for children with disabilities .	SSI loss means loss of Medicaid coverage.	Review status before termination to see whether child qualifies under other categories or new BBA grandfather clause.

Additional Resources Available on line:

This is a list of Web sites where additional material on this subject can be found. Because each has ongoing interest in the topic, links are to the main site, allowing you to find additional reports as they come on line. Some available reports are named for each site.

The US Department of Health and Human Services, Health Care Finance Administration has produced Supporting Families in Transition: A guide to expanding health coverage in the post-welfare reform world.. It can be downloaded from their website at http://www.acf.dhhs.gov/news/welfare/welfare.htm

HCFA's statistics on Medicaid enrollment can be found at

http://www.hcfa.gov/medicaid/mcaidsad.htm

The Center on Budget and Policy Priorities has published a number of guides on this issue. These include Assuring that Eligible Families Receive Medicaid when TANF Assistance is Denied or Terminated, and The Ins and Outs of Delinking. They can be found at http://www.cbpp.org

The Center for Health Services Research and Policy, The George Washington University, has issued several reports on this topic. Among them, States' Use of Options Under Section 1931 to Account for the Effects of Diversion under Welfare Reform and A Description and Assessment of State Approaches to Diversion Programs and Activities under Welfare Reform

They can be found at http://www.gwu.edu/~chsrp/. Select "What's new" for links to recent publications, or use search to find other reports on the site.

The report from Families USA cited in this paper, Losing Health Insurance-The Unintended Consequences of Welfare Reform can be found at http://www.familiesusa.org/uninten.htm.

The Henry J. Kaiser Family Foundation study cited here, Participation in Welfare and Medicaid Enrollment,can be downloaded from their site, http://www.kff.org , which also contains a number of other reports on Medicaid.

The Nelson A. Rockefeller Institute of Government has an excellent, jargon-free overview. The Relationship between Welfare Reform and Medicaid: A Preliminary View can be read at http://rockinst.org/nytpaper.html.

A number of other studies related to this issue that were used in writing this report can be accessed through links in the annotated article. This issue brief, with links to sources of additional information, is on line at the National Conference of State Legislatures, the Forum for State Health Policy Leadership at

http://www.ncsl.org/programs/health/forum/chairs/tanf2ma.htm

For more information, call or e-mail Kala Ladenheim, Program Manager,
NCSL Forum for State Health Policy Leadership
202-624-3557

This issue brief was prepared through the generous support of
the Henry J. Kaiser Family Foundation and
the W. K. Kellogg Foundation

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