Medicaid: Early Implications of Welfare Reform for Beneficiaries and
States (Letter Report, 02/24/98, GAO/HEHS-98-62).

Pursuant to a congressional request, GAO reviewed the Medicaid-related
actions states have taken in the first year of welfare reform, focusing
on: (1) the Medicaid related options the welfare reform law gave states
and the approaches states have taken; (2) the implications of these
states choices for Medicaid eligibles and for the states' administrative
processes; and (3) steps states have taken or plan to take to educate
and enroll Medicaid eligibles, in view of their changing eligibility for
cash assistance programs.

GAO noted that: (1) during the first full year of welfare reform, the
nine states GAO reviewed chose welfare reform options that generally
sustained Medicaid coverage for their previously eligible populations;
(2) the options provided to states included establishing different
income and resource (asset) standards for their Medicaid and cash
assistance programs, administering the two programs separately, imposing
Medicaid-related penalties for welfare recipients not complying with
state work rules, and discontinuing Medicaid coverage for aliens; (3)
four of the nine states GAO visited had separate income or resource
standards for their Medicaid and cash assistance programs; (4) according
to officials in these states, eligibility standards had been separated
as part of state welfare reform; (5) consistent with the options offered
states by the welfare reform law, these separate standards often
provided more generous income or resource limits for Medicaid than for
welfare recipients, thus protecting eligibility for medical assistance;
(6) to foster administrative efficiencies for states and public
assistance applicants, all nine states chose to continue using a common
application for their welfare and Medicaid programs and eight chose to
continue using a single agency at the local level to determine applicant
eligibility; (7) while the welfare reform law offered states the option
of witholding Medicaid as a sanction for noncompliance with state work
rules, as well as discontinuing Medicaid coverage for most aliens, none
of the nine states chose to do so; (8) the intial choices that these
states made resulted in little structural change in their Medicaid
programs; (9) there were initially some concerns that new Supplemental
Security Income (SSI) eligibility restrictions for certain aliens and
disabled children would affect their Medicaid eligibility; (10) however,
subsequent legislation modified and reversed, to some extent, the
provisions that restricted SSI eligibility for these populations; (11)
welfare reform also poses new challenges for states' Medicaid
beneficiary education and enrollment activities; (12) even prior to
welfare reform, significant numbers of children were eligible for
Medicaid but not enrolled; and (13) welfare reform increases the number
of Medicaid eligibles who do not receive cash assistance--individuals
who are often difficult to identify and enroll in Medicaid.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS-98-62
     TITLE:  Medicaid: Early Implications of Welfare Reform for 
             Beneficiaries and States
      DATE:  02/24/98
   SUBJECT:  Welfare recipients
             Public assistance programs
             State-administered programs
             Welfare benefits
             Health care programs
             Eligibility determinations
IDENTIFIER:  Medicaid Program
             Supplemental Security Income Program
             AFDC
             Aid to Families with Dependent Children Program
             HHS Temporary Assistance for Needy Families Program
             
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Cover
================================================================ COVER


Report to the Ranking Minority Member, Subcommittee on Children and
Families, Committee on Labor and Human Resources, U.S.  Senate

February 1998

MEDICAID - EARLY IMPLICATIONS OF
WELFARE REFORM FOR BENEFICIARIES
AND STATES

GAO/HEHS-98-62

Welfare Reform and Medicaid

(101525)


Abbreviations
=============================================================== ABBREV

  AFDC - Aid to Families With Dependent Children
  FIP - Family Investment Program
  HCFA - Health Care Financing Administration
  HHS - Department of Health and Human Services
  IFA - individualized functional assessment
  SSI - Supplemental Security Income
  TANF - Temporary Assistance for Needy Families
  TIES - Texas Integrated Eligibility Services
  WAGES - Work and Gain Economic Self-sufficiency

Letter
=============================================================== LETTER


B-276399

February 24, 1998

The Honorable Christopher J.  Dodd
Ranking Minority Member
Subcommittee on Children and Families
Committee on Labor and Human Resources
United States Senate

Dear Senator Dodd: 

The Personal Responsibility and Work Opportunity Reconciliation Act
of 1996\1 instituted the most fundamental reform to welfare since its
inception more than 60 years ago.  To promote work rather than
welfare dependence and to provide states more flexibility in
designing their welfare programs, the new welfare reform law made a
number of changes to the nation's cash assistance programs, including
Aid to Families With Dependent Children (AFDC) and the Supplemental
Security Income (SSI) program.  The law also had important
implications for Medicaid, which in fiscal year 1996 spent $160
billion to finance health care coverage for low-income families and
blind, disabled, and elderly people.  Previously, eligibility for
cash assistance and Medicaid benefits were directly linked by federal
law.  Welfare reform, however, generally severed that link. 

Few changes were made directly to Medicaid as a result of welfare
reform.  However, many believed that state Medicaid programs could be
significantly affected, since states could use their newly authorized
flexibility to change the eligibility criteria for cash
assistance--which, prior to welfare reform, was often the basis for
Medicaid eligibility--or to limit Medicaid coverage for aliens
already receiving benefits.  Also unclear was the states' ability to
administratively handle the potentially large number of
individuals--such as aliens and disabled children--who might lose SSI
benefits due to welfare reform and would need their continued
eligibility for Medicaid to be redetermined.  Some estimates
projected that over 1.5 million individuals could be involved in such
redeterminations and that nearly 1 million previously eligible aliens
and disabled children would no longer qualify for Medicaid benefits. 
There have also been concerns that, under the new law, people losing
AFDC or SSI benefits may not be adequately informed about their
continued Medicaid eligibility. 

The welfare reform law provided states several options for
administering Medicaid in a post-welfare-reform era.  States'
responses to these options--and the resulting impact on beneficiaries
and states--were uncertain at the time of the law's enactment.  In
light of the potential for significant change and your interest in
determining what Medicaid-related actions states have taken in the
first year of welfare reform, you asked us to

  -- briefly describe the Medicaid-related options the welfare reform
     law gave states and discuss the approaches states have chosen;

  -- identify the implications of these state choices for Medicaid
     eligibles and for the states' administrative processes; and

  -- identify steps states have taken or plan to take to educate and
     enroll Medicaid eligibles, in view of their changing eligibility
     for cash assistance programs. 

To identify the Medicaid-related options states were provided under
welfare reform, we analyzed the law and interviewed issue area
experts, including those representing the American Public Welfare
Association and The George Washington University's Center for Health
Policy Research.  To identify the choices states have made for their
Medicaid programs and the resulting impact on beneficiaries and state
administrative processes during the first full year of the law's
implementation, we contacted officials from the Health Care Financing
Administration (HCFA) in the Department of Health and Human Services
(HHS).  We also visited nine states--California, Connecticut,
Florida, Georgia, Iowa, New Jersey, New York, Texas, and
Wisconsin--between March and June 1997.  During these visits and in
subsequent follow-up contacts, we also asked state officials about
their efforts to educate and enroll Medicaid-eligible populations
following welfare reform.  We judgmentally selected these states
because of their geographic and demographic diversity, the size of
their Medicaid programs, and differing degrees of welfare reform
experience prior to the law's enactment.  We also chose California,
Florida, New York, and Texas because of the large number of aliens in
those states.  (For more information on our scope and methodology,
see app.  I.) Our work was performed between November 1996 and
January 1998 in accordance with generally accepted government
auditing standards. 


--------------------
\1 P.L.  104-193. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

During the first full year of welfare reform, the nine states we
reviewed chose welfare reform options that generally sustained
Medicaid coverage for their previously eligible populations.  The
options provided to states included establishing different income and
resource (asset)\2 standards for their Medicaid and cash assistance
programs, administering the two programs separately, imposing
Medicaid-related penalties for welfare recipients not complying with
state work rules, and discontinuing Medicaid coverage for aliens. 
Four of the nine states we visited had separate income or resource
standards for their Medicaid and cash assistance programs.  According
to officials in these states, eligibility standards had been
separated as part of state welfare experimentation, which began
before the 1996 federal welfare reform.  Consistent with the options
offered states by the welfare reform law, these separate standards
often provided more generous income or resource limits for Medicaid
than for welfare recipients, thus protecting eligibility for medical
assistance.  To foster administrative efficiencies for states and
public assistance applicants, all nine states chose to continue using
a common application for their welfare and Medicaid programs and
eight chose to continue using a single agency at the local level to
determine applicant eligibility.  While the welfare reform law
offered states the option of withholding Medicaid as a sanction for
noncompliance with state work rules, as well as discontinuing
Medicaid coverage for most aliens, none of the nine states chose to
do so. 

The initial choices that these states made resulted in little
structural change in their Medicaid programs.  There were initially
some concerns that new SSI eligibility restrictions for certain
aliens and disabled children would affect their Medicaid eligibility. 
However, subsequent legislation modified and reversed, to some
extent, the provisions that restricted SSI eligibility for these
populations.  For example, the Balanced Budget Act of 1997\3 created
a new Medicaid eligibility category for disabled children who had
been receiving SSI coverage but lost eligibility due to welfare
reform.  However, we found that in October 1997, one state
temporarily terminated about 1,700 children from Medicaid without
granting continued eligibility under the new category.  With regard
to other administrative processes, some states with more experience
in using the new welfare reform flexibility pointed out that some
adjustments will be needed, especially to establish separate welfare
and Medicaid eligibility determination processes.  The extent and
cost of these adjustments are not yet clear.  And although welfare
reform authorized states to use private contractors to determine
applicant eligibility for welfare, this authority was not extended to
Medicaid, thus necessitating duplicative administrative processes in
some cases.  For example, in one state, public assistance applicants
must be interviewed twice:  once by a private contractor to apply for
cash assistance and once by a public employee to apply for Medicaid. 

Welfare reform also poses new challenges for states' Medicaid
beneficiary education and enrollment activities.  Even prior to
welfare reform, significant numbers of children--3.4 million in
1996--were eligible for Medicaid but not enrolled.  Welfare reform
increases the number of Medicaid eligibles who do not receive cash
assistance--individuals who are often difficult to identify and
enroll in Medicaid.  Some states are beginning to modify their
education and enrollment strategies to reach this population. 
Wisconsin, for example, has begun targeting public assistance
eligibility workers, individual providers, and Medicaid-eligible
individuals to communicate that people may qualify for medical
assistance even though they do not qualify for welfare.  State
officials acknowledge that implementing an effective strategy to
reach all eligible individuals will be a significant and continuing
challenge. 


--------------------
\2 "Resources" is the term that the welfare reform law, as well as
federal and state welfare agencies, use to refer to assets such as
bank accounts, liquid assets, real estate, automobiles, and other
personal property. 

\3 P.L.  105-33. 


   BACKGROUND
------------------------------------------------------------ Letter :2

The Personal Responsibility and Work Opportunity Reconciliation Act
was intended to provide states the flexibility to design cash
assistance programs that encourage work and end welfare dependence. 
Although the act greatly affected AFDC and SSI, few changes were made
to Medicaid to help ensure continued health care coverage for
low-income families and children. 

Since its inception in 1935, AFDC--a state and federally funded
entitlement program administered by HHS' Administration for Children
and Families and the states--guaranteed cash assistance to needy
families with children.  The new welfare reform law replaced AFDC
with a block grant program, Temporary Assistance for Needy Families
(TANF), that ended open-ended federal funding and eliminated the
entitlement to cash assistance for eligible families.  Unlike the
former AFDC program, TANF and the Administration for Children and
Families have placed few requirements on how states design and
administer their programs.  But to encourage work and discourage
long-term dependency on public assistance, TANF requires that adults
begin working within 2 years of receiving benefits and places a
5-year lifetime limit on benefits. 

The Balanced Budget Act of 1997 modified several provisions of the
welfare reform law that affected SSI eligibility criteria for aliens
and Medicaid eligibility for disabled children.  SSI--a federal
income assistance program that provides monthly cash payments to
needy aged, blind, or disabled persons--is administered by the Social
Security Administration.\4 The welfare reform law eliminated SSI
eligibility for most aliens and tightened the eligibility criteria
for children to qualify for disability assistance, with projected
savings of more than $21 billion over a 6-year period, according to
Congressional Budget Office estimates.  The Balanced Budget Act, in
part, reinstated Medicaid coverage for those aliens and disabled
children who were enrolled in SSI when the welfare reform law was
enacted on August 22, 1996. 

While major changes were made to cash assistance programs, relatively
few changes were made to Medicaid--a federal-state funded program
that the states administer under broad guidance from HCFA.  Welfare
reform, however, had the potential to directly affect Medicaid
eligibles who, prior to the reform, were automatically enrolled in
Medicaid based on their eligibility for cash assistance under AFDC. 
This population accounted for less than 40 percent of the total
Medicaid population in 1996.\5 To ensure continued Medicaid coverage
for low-income families, the law generally set Medicaid eligibility
standards at AFDC levels in effect on July 16, 1996.  By setting
Medicaid's eligibility standards at this level, the law ensured that
low-income families who would have been eligible for Medicaid before
welfare reform continued to qualify for services regardless of the
states' cash assistance reforms. 

In addition, the Balanced Budget Act established the State Children's
Health Insurance Program and authorized over $20 billion over a
5-year period in federal matching funds to expand health care
coverage to uninsured, low-income children who do not qualify for
Medicaid.  The Balanced Budget Act offers states several options
regarding this program.  States can use their federally set
allotments to (1) expand their existing Medicaid programs to include
children who do not qualify under the state's March 31, 1997,
Medicaid rules; (2) create or expand a separate children's health
insurance program; or (3) use a combination of Medicaid and State
Children's Health Insurance Program funds to increase health coverage
for children. 


--------------------
\4 Thirty-eight states make SSI recipients automatically eligible for
Medicaid.  While welfare reform did not affect the link between
Medicaid and SSI, by tightening SSI eligibility criteria, the law in
effect also impacted Medicaid eligibility for individuals in these 38
states. 

\5 The Medicaid population can be divided into three broad
categories:  (1) people whose Medicaid eligibility is primarily based
on receipt of cash assistance, (2) people who do not receive cash
assistance, and (3) people who receive cash assistance but could
qualify for Medicaid under an alternative eligibility category.  For
fiscal year 1996, people in the first category represented about 36
percent of the Medicaid population.  The second category, as well as
some individuals in the third category, are part of the so-called
Medicaid "expansion" population--pregnant women, infants, and
children born after September 30, 1983--who states must cover based
on income.  The Medicaid expansion population was not directly
affected by welfare reform.  In addition, states can extend Medicaid
coverage to certain categories of individuals with too much income to
receive cash assistance but who are considered medically needy
because of their large medical costs. 


   STATES GENERALLY OPTED TO
   ADMINISTER MEDICAID AS THEY DID
   PRIOR TO WELFARE REFORM
------------------------------------------------------------ Letter :3

Although the new welfare reform law provided states with certain
choices regarding Medicaid eligibility and administration, the states
that we visited chose welfare reform options that sustained Medicaid
coverage for their previously eligible populations.  Medicaid-related
options involve income and resource criteria for determining
eligibility, aspects of program administration, sanctions for
noncompliance with TANF work requirements, and continued Medicaid
coverage for certain aliens residing in the United States at the time
of the law's enactment.  Table 1 shows the Medicaid-related choices
that the nine states we visited made. 



                                         Table 1
                         
                          Nine States' Medicaid-Related Choices,
                                       August 1997

                                     Cali  Conn
State options                          f.     .  Fla.   Ga.  Iowa  N.J.  N.Y.  Tex.  Wis.
-----------------------------------  ----  ----  ----  ----  ----  ----  ----  ----  ----
Common eligibility criteria for
 Medicaid and TANF for low-income
 families
Income standards                              X     X     X     X           X     X
Resource standards                      X     X     X     X     X                 X
Income determination methodologies            X     X           X                 X
Resource determination                        X     X     X     X                 X
 methodologies
Common program administration for
 determining eligibility
Single state agency                   X\a     X     X     X     X     X   X\a     X
Single application                      X     X     X     X     X     X     X     X     X
Medicaid as a TANF work sanction\b
Medicaid coverage for qualifying        X     X     X     X     X     X     X     X     X
 aliens\c
-----------------------------------------------------------------------------------------
\a These states have state-supervised, locally administered programs. 
Medicaid and TANF eligibility determinations are made at the local
level by city or county social service caseworkers. 

\b None of the states we visited chose this option. 

\c State officials provided this information prior to the enactment
of the Balanced Budget Act on August 5, 1997. 

Source:  GAO analysis. 

In the first year of welfare reform implementation, states generally
chose to maintain the linkages formerly in place between their
Medicaid and cash assistance programs.  In some states, financial
eligibility criteria for Medicaid and cash assistance had begun to
diverge prior to welfare reform, as a result of state welfare
experimentation.  This divergence was consistent with the flexibility
that the 1996 federal welfare reform law offered states. 


      STATES' CHOICES REGARDING
      MEDICAID ELIGIBILITY
---------------------------------------------------------- Letter :3.1

The Congress included a provision in the welfare reform law to
protect Medicaid eligibility for low-income families.  This
provision--which requires states to use AFDC's July 16, 1996,
standards as the criteria for determining Medicaid eligibility--also
provides several exceptions, only one of which allows states to
impose more restrictive standards.  Specifically, the law permits
states to (1) increase their AFDC July 16, 1996, income and resource
standards by as much as the year's consumer price index; (2) use less
restrictive methodologies for calculating family income and resources
than used on July 16, 1996; or (3) lower their AFDC July 16, 1996,
income standards but not below May 1, 1988, levels.\6 At the time of
our visits, none of the nine states indicated that they intended to
lower their AFDC income standards from July 16, 1996, levels, which
could have disqualified some individuals from the Medicaid program.\7

Florida, however, increased its income standard.  States desiring to
modify their standards or methodologies are required to submit their
amended Medicaid state plans to HCFA. 

However, because of Medicaid's historic linkage to cash assistance,
choices that states must make regarding eligibility for TANF can also
affect Medicaid participation rates for low-income families.  For
example, states must choose who will be eligible for TANF and how
much income and resources TANF recipients may have.  Less generous
standards could discourage people from going to welfare offices where
they could receive information on Medicaid eligibility.  The welfare
reform law gives states the option to continue using their July 16,
1996, AFDC categorical and financial standards for both programs or
to develop separate standards for TANF.\8

Four of the nine states we visited reported having separate income or
resource standards for Medicaid and TANF.  (See table 1.) Officials
in these states told us they began using different standards for
their Medicaid and cash assistance programs under time-limited
welfare demonstration projects that began before the passage of
federal welfare reform legislation.\9 State officials indicated that
their attempts to identify the proper mix of incentives that would
encourage work and discourage welfare dependency frequently led to
more generous Medicaid income limits that allowed working families to
remain eligible for Medicaid--as was the case in California and New
Jersey.\10 (App.  II provides more detail on income and resource
standards for the nine states.)

In addition to experimenting with income and resource standards
before welfare reform, states experimented with different
methodologies for determining financial eligibility and the amount of
cash assistance a family could receive.  AFDC regulations allowed
states to disregard (not count) certain types of income and
resources.  For example, states could disregard $265 of a family's
monthly income--$90 for work-related expenses and $175 per child for
child care expenses\11 --when determining income eligibility for AFDC
and Medicaid.  While TANF does not require states to use this or any
of the other former AFDC determination methodologies, the welfare
reform law requires states to continue using their AFDC July 16,
1996, methodologies for determining Medicaid eligibility.\12

Five of the nine states we visited told us they have different income
and resource determination methodologies for their Medicaid and
welfare programs.  For example, New Jersey officials told us they use
more liberal Medicaid income and resource determination methodologies
as incentives to encourage cash assistance recipients to begin
working.  The state disregards 100 percent of the first month's
earnings and 50 percent of subsequent months' earnings to redetermine
continued Medicaid eligibility for welfare families who have begun to
work.  Also, by disregarding the first $1,000 of personal property,
the state has effectively raised its Medicaid resource standard to
$2,000--the limit for individuals applying for Work First, New
Jersey's TANF program.  In contrast, Wisconsin counts all income in
determining whether an applicant is below the 115-percent federal
poverty level and eligible for the state's TANF program--Wisconsin
Works, or W-2--but adheres to its July 16, 1996, AFDC rules to
determine Medicaid eligibility. 


--------------------
\6 The welfare reform law did not permit states to lower their
resource standards or to use more restrictive income and resource
methodologies.  The language that allows a state to lower its income
standard (but not below May 1, 1988, levels) was retained from a
previously established provision of the Medicare Catastrophic
Coverage Act of 1988 (P.L.  100-360).  Although states have the
flexibility to lower their Medicaid income standards, those states
choosing to participate in the new State Children's Health Insurance
Program cannot lower their Medicaid eligibility standards below June
1, 1997, levels.  In this report, we refer to the July 16, 1996, AFDC
standards as the continuing standard for Medicaid eligibility
subsequent to welfare reform. 

\7 AFDC regulations required families to pass several income tests. 
First, gross income could not exceed 185 percent of the state's need
standard for the relevant family size.  (The need standard
represented the amount of income each state determined as essential
for a minimal standard of living.) Second, net income could not
exceed 100 percent of the state's need standard.  Net income also had
to be below the state-set payment standard, which in most states was
less than the need standard and represented the maximum AFDC cash
assistance payment the family was entitled to receive.  In about a
dozen states in January 1996, actual maximum AFDC benefits were also
below state payment standards.  HCFA has interpreted "AFDC income
standards" as including the need and payment standards as well as the
185-percent gross income test. 

\8 For categorical AFDC eligibility, a family had to include a
dependent child who was under age 18 and deprived of parental support
because of an absent, deceased, unemployed, or incapacitated parent. 
To qualify financially, family income and resources had to be below
state-specified levels. 

\9 Under section 1115 of the Social Security Act, which authorizes
the Secretary of HHS to waive specified requirements of AFDC and
Medicaid law, states were testing the feasibility and cost-
effectiveness of alternative approaches to providing cash assistance
and Medicaid services.  By October 1996, 43 states had waivers from
AFDC requirements involving, for example, recipient income and assets
as well as family size and composition.  The new welfare reform law
allowed states to continue their welfare demonstration
projects--without regard to conflicting provisions--through the life
of the project. 

\10 Thirty states had welfare waivers allowing more generous
treatment of earned income for determining Medicaid eligibility than
allowed by law.  Twenty-eight states had waivers allowing families
more than $1,000 in personal property (resources) to retain Medicaid
eligibility, and 25 states allowed more than $1,500 in vehicle
equity. 

\11 AFDC regulations allowed $200 for children under 2 years of age. 

\12 The Medicare Catastrophic Coverage Act allows states to use more
liberal income and resource methodologies for determining Medicaid
eligibility for certain individuals, such as pregnant women, infants,
and children born after September 30, 1983.  The welfare reform law,
however, requires that states use the AFDC July 16, 1996, rules in
determining Medicaid eligibility for a family. 


      STATES GENERALLY DID NOT OPT
      TO SEPARATE MEDICAID AND
      CASH ASSISTANCE PROGRAM
      ADMINISTRATION
---------------------------------------------------------- Letter :3.2

Prior to welfare reform, federal law provided that a single state
agency be responsible for making both AFDC and Medicaid eligibility
determinations.  As a result, local public assistance caseworkers
were generally responsible for accepting applications and determining
eligibility for both AFDC and Medicaid.\13

Welfare reform gave states the option to continue using a single
agency to determine eligibility for Medicaid and TANF or to assign
those duties to separate agencies.  Additionally, the law gave states
the option of using a single application for both programs or
separate forms. 

All but one of the states we visited planned, at least in the near
term, to maintain the administrative and application linkages between
the two programs.  All nine states use a common application for the
programs, and only Wisconsin has separate agencies for determining
applicant eligibility.  State officials, including those in
Wisconsin, believe that common applications are less burdensome for
families seeking assistance and simplify the interview process for
caseworkers. 

Florida officials, for example, told us that the state has used a
common application for its assistance programs since 1992.  Following
the passage of federal welfare reform, Florida further streamlined
the application process by converting its state unemployment offices
into one-stop public assistance centers.  At these centers, Florida
residents can complete a single application to apply for Medicaid,
job search assistance, child care, housing, and emergency assistance. 
There are 65 such centers located throughout the state. 

Wisconsin officials told us that although a single state agency will
no longer determine applicant eligibility for Medicaid and TANF, the
state will continue to use a single application for both programs. 
Wisconsin's Department of Workforce Development determines
eligibility for W-2 and the Department of Health and Family Services
determines Medicaid eligibility.\14 Wisconsin officials explained
that both agencies use the same electronic application and have
access to information in the state's client database.  Wisconsin's
interactive application guides caseworkers and applicants through the
interview, prompting workers to input data sufficient to identify the
full array of services and benefits applicants may receive. 


--------------------
\13 Caseworkers also processed applications for Medicaid-only
services.  Medicaid applicants can apply for services at outstation
locations, such as selected hospitals and health clinics.  In some
states, they can also apply by mail. 

\14 Wisconsin applies different criteria for determining W-2 and
Medicaid eligibility.  Among the W-2 program's 14 nonfinancial
criteria, 3 are notably different from Medicaid.  W-2 participants
must be (1) custodial parents who are at least 18 years of age, (2)
state residents for more than 60 days, and (3) willing to accept any
bona fide job offer.  Unlike W-2 criteria, for an entire family to be
eligible for Medicaid, the household must include a child who is
under age 18 and deprived of parental support because of an absent,
deceased, unemployed, or incapacitated parent.  Also, Medicaid does
not have similar durational state residency or job acceptance
requirements. 


      STATES GENERALLY DID NOT OPT
      TO USE DENIAL OF MEDICAID
      BENEFITS AS A WELFARE
      SANCTION
---------------------------------------------------------- Letter :3.3

Under the new welfare reform law, states can sanction TANF recipients
for not complying with cash assistance rules.  States may reduce or
terminate recipients' cash assistance or temporarily terminate
Medicaid coverage for an adult head of a household.  The law cites
"refusing to work" as a reason for terminating Medicaid\15 but does
not permit states to terminate Medicaid benefits for pregnant women,
infants, or children who are not a head of a household.  The law also
limits the length of a Medicaid sanction to when the recipient begins
complying with the state's rules.  None of the nine states we visited
denied Medicaid as a program sanction for noncompliance with state
work rules.\16 In our interviews with state officials, few thought it
appropriate to use Medicaid as a sanction for noncompliance with TANF
work requirements. 


--------------------
\15 The new welfare law requires that adult recipients begin working
within 2 years of receiving cash assistance; however, states are free
to establish even shorter timetables. 

\16 However, we identified two states that use Medicaid to sanction
other types of noncompliant actions.  In Florida, Medicaid enrollment
is blocked for non-pregnant women who will not comply with their
Department of Revenue's efforts to establish paternity and collect
child support.  According to New York's Welfare Reform Act of 1997,
public assistance recipients--singles; childless couples; and
individuals who are not disabled, blind, or pregnant--who are
suspected of substance abuse and refuse to comply with the state's
investigation and state-required substance abuse treatment can be
terminated from Medicaid.  Only noncompliant members of the household
are included in the sanction. 


      FOUR STATES USE OWN FUNDS TO
      PROVIDE MEDICAL ASSISTANCE
      FOR QUALIFIED ALIENS NOT
      ELIGIBLE FOR FEDERAL
      BENEFITS
---------------------------------------------------------- Letter :3.4

Four of the nine states we visited intended to provide state-funded
medical assistance for aliens not eligible for federal assistance. 
Before welfare reform, aliens who were legally admitted to the United
States were generally eligible for Medicaid coverage on the same
terms as citizens.\17 The Personal Responsibility and Work
Opportunity Reconciliation Act recategorized all aliens into two
broad categories:  qualified and nonqualified.\18 States generally
had the option of providing Medicaid coverage to all qualified aliens
who were in the country on August 22, 1996,\19 except that refugees,
asylees, and aliens whose deportations are being withheld are
eligible for the first 5 years on the same terms as citizens.  With
certain notable exceptions,\20 those qualified aliens who entered the
country after August 22, 1996, were prohibited from being eligible
for Medicaid for 5 years. 

The Balanced Budget Act of 1997 amended the provisions related to
eligibility of qualified aliens for Medicaid and certain other
federal programs.  For example, it provided that qualified aliens who
were receiving SSI on August 22, 1996, would continue to qualify for
SSI and for Medicaid on the same basis as nonaliens.  In addition,
the act lengthened the period during which refugees, asylees, and
aliens whose deportation has been withheld would remain eligible for
Medicaid from 5 years to 7 years.  The Balanced Budget Act did not,
however, lift the 5-year ban on using federal funds for qualified
aliens who entered the country after August 22, 1996. 

The original limitations of the welfare reform law on qualified
aliens' eligibility for Medicaid and other federal programs were
controversial.  Although the limitations were seen as a major
cost-saving measure, there were concerns, especially in states with
large numbers of aliens, about the continuing subsistence and health
care needs of these people.  All nine states we visited informed us
that, even before passage of the Balanced Budget Act, they intended
to continue Medicaid coverage for qualified aliens already enrolled. 
In addition, four of the nine states indicated that they intended to
provide state-funded medical assistance for aliens not eligible for
federally funded assistance.  Table 2 shows which groups of aliens
not eligible for federal assistance will receive state-funded medical
services in these four states. 



                                Table 2
                
                  State-Funded Medical Assistance for
                    Aliens Not Eligible for Federal
                       Assistance, September 1997

                                        Calif.   Conn.    Fla.    N.Y.
--------------------------------------  ------  ------  ------  ------
Pregnant women                               X       X               X
Children and infants                                 X
Families                                             X
Institutionalized individuals                X                       X
Aged or disabled                                     X       X
----------------------------------------------------------------------
Source:  GAO analysis. 

Although state statute requires California to provide its low-income
residents--regardless of citizenship status--prenatal and long-term
care, proposed changes to state regulations would eliminate
state-funded nonemergency services for nonqualified aliens who are
not eligible for federal assistance as well as for aliens paroled
into the United States for less than 1 year and for those aliens who
immigration law considers as nonimmigrants.  In December 1996,
California's Department of Health Services proposed regulations that
would make state policies regarding aliens consistent with federal
welfare reform law.  The Department proposed and filed regulations to
end state-funded nonemergency prenatal care by December 1, 1997. 
Advocates challenged the regulatory change, and the regulations were
enjoined by a California Superior Court.\21 The Department also filed
regulations that would eliminate state-funded long-term care services
but did not set a date for terminating funding.  California officials
told us they are uncertain if and when state funds for either group
will be terminated. 

The state estimates that about 2,800 aliens apply each month for
Medi-Cal--California's Medicaid program--and it is likely that most
will be subject to the 5-year federal ban on nonemergency medical
assistance.\22 Because the state has not amended its laws redefining
Medi-Cal eligibility for aliens, the state-funded program will cover
services for those aliens who lost eligibility for nonemergency
medical assistance due to federal welfare reform's restrictions on
aliens.  According to California's November 1997 Medi-Cal estimates,
the state-funded program may incur an additional $25.3 million during
the state's 1998-99 fiscal year and as much as $56.9 million annually
by the state's 2001-02 fiscal year. 

In July 1997, the Connecticut legislature authorized state medical
assistance expenditures for aliens admitted into the United States on
or after August 22, 1996, who are subject to the 5-year ban but who
meet other Medicaid eligibility criteria and have been state
residents for at least 6 months.  Connecticut's state-funded medical
assistance package will not cover long-term care or community-based
services.  The legislature also only authorized funding for 2 years. 
According to state estimates, about 350 aliens qualify for
state-funded medical assistance. 

The Florida legislature passed the Humanitarian Aid to Legal
Residents Act of 1997 to provide medical and financial assistance and
Food Stamp benefits to elderly and disabled aliens who were state
residents on June 30, 1997.  Annually, about 12,000 aliens legally
enter Florida, many of whom are over 65 years of age with no other
means of support and would not be able to become United States
citizens due to mental or physical incapacity.  State legislators
were particularly concerned with the well-being of aliens who would
be subject to the welfare law's 5-year ban on federal assistance. 

The New York legislature was similarly concerned about the fate of
elderly and other aliens who are subject to the 5-year federal ban. 
New York's Welfare Reform Act of 1997 provides state-funded medical
assistance for aliens who were enrolled in Medicaid on August 4,
1997, and in nursing homes or residential care facilities licensed by
the state's Office of Mental Health or by the Office of Mental
Retardation and Developmental Disabilities.  State officials estimate
that it will cost about $32 million annually to care for the
approximately 1,000 aliens who are in those qualifying nursing homes
and residential care facilities.  New York also provides prenatal
care for all aliens and does not distinguish between those who are or
are not subject to the 5-year ban.\23 State officials were unable to
estimate the cost of these services. 


--------------------
\17 Although legally admitted into the United States, tourists,
students, and temporary workers who immigration law classifies as
nonimmigrants could receive only emergency Medicaid services. 

\18 Qualified aliens include legal permanent residents (sometimes
referred to as immigrants), asylees, refugees, aliens paroled for at
least 1 year, prospective deportees whose deportation is being
withheld, and certain aliens granted conditional entry.  (Parolees
are persons granted temporary admission into the country for
humanitarian reasons or when it is determined to be in the public
interest.) All other aliens were considered nonqualified. 
Nonqualified aliens were made ineligible for all but a very narrow
range of emergency and other services. 

\19 The welfare reform law required that resident aliens who were
receiving Medicaid benefits on August 22, 1996, continue receiving
Medicaid until January 1, 1997.  In addition, veterans and active
duty military personnel, as well as their spouses and unmarried
dependents, and certain permanent resident aliens who had worked 40
qualifying quarters under the Social Security Act continued to be
eligible for Medicaid coverage on the same terms as citizens.  (A
qualifying quarter is a 3-month work period with sufficient income to
be counted as a social security quarter; for those quarters after
December 31, 1996--according to the welfare reform law--no federal
means-tested benefits were received.)

\20 Veterans and people on active military duty (as well as their
spouses and unmarried dependent children) were excepted from the
5-year ban on Medicaid eligibility.  Refugees, asylees, and persons
for whom deportation has been withheld were also excepted, but their
eligibility was limited to the first 5 years after they established
their respective status.  (The welfare reform law does not preclude
refugees, asylees, or aliens from applying for citizenship or for a
change in admission status.)

\21 On January 23, 1998, a state appellate court issued a stay of
this injunction.  According to California officials, the state plans
to proceed with its original intention to discontinue prenatal care. 

\22 California officials estimate that, on average, approximately
940,000 aliens have nonemergency Medi-Cal coverage per month. 

\23 New York claims Medicaid federal matching funds for these
prenatal care services.  State officials told us that because the
Lewis v.  Grinker (CV-79-1740) court order has not been vacated, the
state and federal governments must continue to provide prenatal care
for all Medicaid-eligible aliens in New York.  Because of the court
order, the state does not inquire into citizenship status before
providing prenatal care. 


   BALANCED BUDGET ACT SOFTENED
   WELFARE REFORM'S IMPACT ON
   MEDICAID BENEFICIARIES; IMPACT
   ON ADMINISTRATIVE PROCESSES IS
   UNCLEAR
------------------------------------------------------------ Letter :4

Because of the Medicaid-related welfare reform options that states
exercised, the states we visited reported few structural changes for
their Medicaid beneficiaries.  In addition to questions about what
options states would exercise in the first year of welfare reform,
there were concerns about the potential adverse impact of the new
law's more restrictive SSI criteria on children's Medicaid
eligibility.  Moreover, the Balanced Budget Act of 1997 largely
mitigated the concerns about lost Medicaid coverage in most states. 
However, we found that in one state we visited, about 1,700 children
who lost SSI eligibility due to welfare reform were inappropriately
terminated from Medicaid.  Despite limited structural changes, some
states we visited were concerned about the impact on their
administrative processes as they manage Medicaid programs using July
16, 1996, AFDC eligibility criteria or contract with private firms to
determine applicant eligibility for cash assistance and work with
welfare clients.  Although some state officials expressed concerns
about the anticipated costs resulting from these new administrative
requirements and associated changes to their information systems,
most could not provide firm cost estimates at the time of our
visits.\24


--------------------
\24 Welfare reform provided an additional $500 million to the states
to help respond to the new administrative costs for their Medicaid
programs.  HCFA issued regulations allocating these funds in May
1997.  HCFA's two-part allocation gave each state $2 million plus an
amount, ranging between about $500,000 and $81.7 million, that was
based on the state's AFDC caseload and Medicaid expenditures.  HCFA
regulations limit use of these funds to those activities associated
with the transition from AFDC to TANF, including Medicaid eligibility
determinations, education, and outreach.  At the time of our state
visits, most states had not determined what their additional
administrative costs would be or how they planned to use the new
funds. 


      BALANCED BUDGET ACT LESSENED
      POTENTIAL IMPACT OF MEDICAID
      COVERAGE FOR DISABLED
      CHILDREN
---------------------------------------------------------- Letter :4.1

The 1996 welfare reform law enacted several provisions that affected
SSI eligibility for children.  First, the law changed the definition
of childhood disability from an impairment comparable to one that
would prevent an adult from working to an impairment that results in
"marked and severe functional limitations." Second, the law
eliminated the individualized functional assessment (IFA) process as
a basis that the Social Security Administration could use for
determining childhood disability.  Third, the law revised how
maladaptive behavior (behavior that is destructive to oneself,
others, property, or animals) is considered when assessing whether a
child has a mental impairment.  For example, before welfare reform, a
child could qualify for SSI if the impairment kept the child from
functioning similar to other children of the same age.  The welfare
reform law specified that a child's impairment, or combination of
impairments, could only be considered disabling when it results in
marked and severe functional limitations. 

Soon after welfare reform's enactment, HCFA took steps to lessen the
administrative burden on states of performing SSI-related Medicaid
eligibility redeterminations.  Medicaid regulations require states to
redetermine Medicaid eligibility for individuals losing SSI. 
Advocates were concerned that because of the large number of
individuals potentially losing SSI, states would inappropriately
terminate Medicaid for individuals who might qualify for coverage
under alternative eligibility categories.  To address these concerns
and allow states to better manage their resources, HCFA nearly
tripled the time frames for states to complete Medicaid
redeterminations related to welfare reform.\25

The Balanced Budget Act softened the immediate impact of these SSI
eligibility changes on children's Medicaid coverage and extended the
deadline for terminating cash payments for these children.  For
example, the act specifically authorized a new Medicaid eligibility
category exclusively for children losing SSI due to welfare reform
and who were receiving benefits on August 22, 1996.\26 Previously,
under welfare reform, the Social Security Administration had until
August 22, 1997, to use the new criteria to redetermine the
eligibility of about 300,000 children whose disability had been based
on maladaptive behavior or an IFA determination.  By extending the
deadline to February 22, 1998, the act gave the Administration more
time to complete its redeterminations. 

Despite federal efforts to lessen the potential impact of Medicaid
eligibility redeterminations for those losing SSI, the process did
not always go smoothly.  On October 1, 1997, Georgia inappropriately
terminated Medicaid coverage for about 1,700 children who no longer
met the SSI disability criteria.  Eight days later, advocates filed
suit on behalf of the children, contending that the state (1) had not
continued Medicaid coverage for children meeting the criteria for the
newly created eligibility category, (2) had not appropriately
redetermined the children's eligibility for alternative Medicaid
categories before terminating coverage, and (3) was not continuing
Medicaid coverage during the SSI appeals process.  Georgia officials
attributed the inappropriate terminations to its inability to obtain
requested data from the Social Security Administration on a timely
basis and to administrative and automated-system weaknesses in
recognizing the children's continued eligibility under the newly
authorized category.  HCFA and Georgia officials informed us that the
children who lost Medicaid coverage have been reinstated.  In
addition, the state is continuing to manually redetermine Medicaid
eligibility for those disabled children losing SSI eligibility, while
remedies to its systems problems are being developed. 


--------------------
\25 After receiving notice that an individual has lost eligibility
for SSI, states typically have 20 to 45 days to complete the
redetermination process for Medicaid eligibility.  On January 13,
1997, HCFA issued a regulation and allowed states up to 120 days to
redetermine the Medicaid eligibility of individuals losing SSI
because of welfare reform. 

\26 This new eligibility category was established in addition to the
requirement that states redetermine (or test for) alternative
eligibility categories before terminating Medicaid coverage. 


      STATE CONCERNS ABOUT
      ADMINISTRATIVE PROCESSES AND
      PRIVATIZATION EFFORTS
---------------------------------------------------------- Letter :4.2

The provision of the welfare reform law that protects Medicaid
eligibility for low-income families also carries administrative
implications for the states.  Some state officials expressed concern
about aspects of the welfare reform law that could require changes to
their administrative processes.  Specifically, some viewed the
requirement to use AFDC's July 16, 1996, criteria to determine
Medicaid eligibility and the new authority to contract with private
firms for welfare eligibility determination--but not for Medicaid--as
problematic. 

In some cases, HCFA-approved amendments to a state's Medicaid plan
can resolve program eligibility differences.  For example, according
to Florida's Welfare Reform Administrator, the state had developed a
simplified application process that it now uses for its TANF
program--Work and Gain Economic Self-sufficiency (WAGES)--as well as
for Medicaid and Food Stamp benefits.  Under WAGES, Florida raised
its cash assistance resource standard to $2,000 and liberalized its
resource determination methodology.  According to Florida officials,
to maintain consistent eligibility criteria for WAGES and Medicaid,
the state amended its Medicaid state plan, incorporating the WAGES
program's $2,000 resource standard and determination methodology. 

In other cases, extensive changes to automated administrative systems
may be needed.  For example, as part of several of its welfare
demonstration projects, Iowa tested the impact of having consistent
eligibility criteria for its Family Investment Program (FIP), the
state's cash assistance program for families; Medicaid; Food Stamp
benefits; child care; and foster care and adoption assistance.  The
state also tested the impact of time-limited benefits and work
incentives.  Demonstration project participants were allowed to keep
more income and resources than cash assistance recipients not
involved in the demonstration.  Upon acceptance of the TANF block
grant, Iowa officials separated FIP eligibility from Medicaid so that
work-related income and resource incentives, as well as financial
penalties for noncompliance with FIP rules, would not infringe upon
clients' Medicaid entitlement.  Iowa officials are now considering
the cost implications of separating the programs and the systems
modifications that might be needed.  Florida and Wisconsin officials
also discussed with us similar systems issues that they must resolve
as they implement their welfare reform programs. 

States that opt to fully contract out--or privatize--TANF case
management services may face additional administrative issues,
including duplicate application procedures.  The new welfare reform
law specifically allows states to contract with private firms for
conducting TANF activities--
including determining applicant eligibility--but the law does not
specifically include Medicaid or other federal means-tested programs
in that provision.  Concerned about the law's silence regarding
Medicaid, Texas and Wisconsin appealed to HCFA and to the Department
of Agriculture's Food and Consumer Service, which administers the
Food Stamp program,\27 for policy changes that would allow states to
unify and contract out their eligibility determination processes for
the Medicaid and Food Stamp programs as well as TANF. 

As recently as June 1997, Texas planned to solicit public and private
sector bids to design and implement the Texas Integrated Eligibility
Services (TIES) project.  Under TIES, Texas wanted to reengineer and
consolidate eligibility determination services for all of the state's
assistance programs into one overall system that contractors could
manage.  When Texas officials queried federal officials about the
possibility of using private contractors to interview and determine
applicant eligibility for TANF, Medicaid, and Food Stamp benefits,
they received letters from HHS that questioned the advisability of
proceeding with the state's plans.  One HHS letter stated that
Medicaid's authorizing legislation and the Food Stamp Act preclude
private contractors from evaluating applicant information and
certifying eligibility.  Texas officials told us that because of HHS'
interpretation and other concerns that the state legislature had with
the TIES project, the legislature subsequently limited the bid
solicitation to developing new social service eligibility
determination processes and the information management systems to
support them. 

Wisconsin officials considered HHS' interpretation problematic and
appealed the decision.  As part of the state's welfare reform,
Wisconsin allowed its counties and local governments to decide
whether they would administer the W-2 program or allow the state to
competitively select private organizations that would perform case
management services.  Nine of Wisconsin's 72 counties--including
Milwaukee County--opted to allow the state to contract out for
services.  State officials told us that because of HHS'
interpretation, public assistance applicants in those nine counties
are interviewed twice:  once by the private contractor for W-2
services and once by a county or local government employee for
Medicaid and Food Stamp benefits.  In both instances, case managers
use the state's interactive, universal application to conduct the
interviews.  State officials told us that they are continuing to work
with HCFA to streamline the application process in privatized
counties. 

As designed, a single case manger would help W-2 participants
coordinate the necessary supportive services--such as medical and
transportation assistance, child care, and Food Stamp benefits--and
track the recipient's progress or recommend appropriate sanctions for
willful noncompliance.  Wisconsin officials believe that dividing
program responsibility between private contractors and public
employees dilutes the state's ability to monitor recipients' progress
and compliance as well as its ability to realize administrative
efficiencies. 


--------------------
\27 Food stamps are a federally funded, means-tested benefit that
increases the food purchasing power of eligible households.  Food
Stamp benefits make up the difference between the amount judged
sufficient for an adequate low-cost diet and 30 percent of the
participating household's income.  Like Medicaid, households
qualifying for AFDC and SSI are automatically eligible for Food Stamp
benefits. 


   MEDICAID EDUCATION AND
   ENROLLMENT BECOME INCREASINGLY
   IMPORTANT IN
   POST-WELFARE-REFORM ERA
------------------------------------------------------------ Letter :5

Welfare reform poses additional Medicaid education and enrollment
challenges for states.  The historic link between Medicaid and cash
assistance provided states a strong avenue for ensuring that
individuals who were qualified for cash assistance were also enrolled
in Medicaid.  But as welfare rolls shrink, there is concern that
those who qualify for Medicaid may not enroll.  To help ensure that
Medicaid-eligible individuals enroll in the program, the states we
visited are beginning to consider how to adapt or create new
education and enrollment strategies.\28


--------------------
\28 We are currently analyzing the demographic characteristics of
children who are eligible but not enrolled in Medicaid, the reasons
these children are not enrolled, and strategies that some states are
using to increase their enrollment.  Our report on the results of
this analysis is expected to be issued this spring. 


      STATES ARE CHALLENGED TO
      IDENTIFY AND ENROLL
      POTENTIALLY ELIGIBLE
      INDIVIDUALS
---------------------------------------------------------- Letter :5.1

Welfare reform expands the number of Medicaid beneficiaries whose
eligibility is not tied to cash assistance.  Medicaid eligibles who
do not receive cash assistance are difficult to identify and enroll
in the program.  Prior to welfare reform, significant numbers of
pregnant women and children qualified for Medicaid based on their
age, family income, or both, rather than their link to AFDC or SSI. 
For these expansion populations, states were already faced with
developing strategies to identify and enroll them in Medicaid.\29
More recently, the Balanced Budget Act's State Child Health Insurance
Program increased--at state option--the availability of federal
funding for health care coverage for uninsured children.  These
various initiatives will, in all likelihood, result in many states
rethinking the methods they use to reach and enroll eligible
populations in state health programs. 

Although the welfare reform law preserved Medicaid eligibility for
families who would have previously qualified for Medicaid, data show
that eligible children in low-income families who do not receive cash
assistance are much less likely to enroll in the Medicaid program
than those who receive cash assistance.  As more former welfare
recipients join the ranks of the working poor, some fear that many
who are eligible for Medicaid may not be aware of their eligibility
and, therefore, may not enroll in the program.  We estimate that in
1996, about 23 percent of--or 3.4 million--children who are eligible
for Medicaid were uninsured by public or private coverage.  Of the
states we visited, only Iowa and Georgia provided us with estimates
of the percentage of the Medicaid-eligible children enrolled in their
programs.  Iowa estimated that as of March 1997, more than 80 percent
of its Medicaid-eligible children were enrolled; Georgia estimated
that as of May 1997, roughly 75 to 80 percent of its
Medicaid-eligible children were in the state's program.  The other
states did not have estimates of the number of Medicaid-eligible
children who are--or are not--enrolled in their Medicaid programs. 

Some provisions of the welfare reform law may also serve as a
deterrent for families seeking Medicaid.  For example, some state
officials and beneficiary advocates believe that the new 5-year
lifetime limit on the receipt of cash assistance could deter people
who are eligible for Medicaid benefits from applying, fearing that
Medicaid benefits will count against their time limit.  Advocates are
also concerned that under state diversionary programs--which provide
welfare applicants one-time payments or work-related direct support
services, such as child care or transportation assistance, in lieu of
ongoing cash assistance--individuals may not be advised about their
Medicaid eligibility. 

In Wisconsin, the only state we visited with a statewide diversionary
program in place, caseworkers screen for eligibility for all
assistance programs, including Medicaid, during the applicant's first
visit.  According to state officials, in the nine counties that have
privatized W-2 case management services, individuals who are provided
diversionary assistance are informed of their potential Medicaid
eligibility and directed to a county worker for further information. 
State officials told us that county workers are stationed in the
contractors' offices. 


--------------------
\29 The Omnibus Budget Reconciliation Act of 1990 (P.L.  101-508)
added the requirement that states "outstation" eligibility workers at
locations other than local welfare offices, allowing mothers and
children to apply for Medicaid at the sites where they receive health
care. 


      STATES REALIZE THE NEED TO
      ADAPT OR RESTRUCTURE THEIR
      EDUCATION AND ENROLLMENT
      PLANS TO MEET NEW PROGRAM
      DEMANDS
---------------------------------------------------------- Letter :5.2

All nine states we contacted had a variety of outreach efforts,
including outstationed eligibility workers in selected hospitals and
health clinics.  Most of the states we visited recognized the need to
adapt or create new education and enrollment approaches to ensure
that eligible individuals continue to enroll in Medicaid.  States
with extensive education and enrollment programs already in
place--such as Florida and Georgia--are considering what changes in
the focus of their messages may be needed to reach new groups of
Medicaid-eligible individuals.  Of the states we visited, Wisconsin
appeared to be the furthest along in restructuring its education and
enrollment strategies to improve the likelihood that
Medicaid-eligible individuals would enroll in the program. 

According to Florida officials, before the new welfare reform law,
the state targeted its education and enrollment efforts toward
current and potential beneficiaries in remote locations.  At the time
of our visit, they had made some revisions to reflect welfare
changes.  To inform beneficiaries of the new law, the state
included--with monthly benefit cards--notices that outlined welfare
reform's changes and the potential effects on Medicaid benefits.  To
help ensure that non-English speaking individuals were knowledgeable
about how the new law might affect their benefits, these notices and
other written information were also printed in Spanish and Creole. 
Florida also used community presentations and public service
announcements to inform individuals about the state's medical
assistance programs and where to apply for benefits. 

The state has also expanded its use of Medicaid "outstations."
According to state officials, beneficiaries can now receive
information and apply for medical assistance at one of the state's 65
one-stop centers located throughout the state as well as from
hospitals and community health centers.  State documents reveal that
although one-stop center staff are primarily responsible for
TANF-related activities, they also accept and process Medicaid
applications and arrange for employment-related support services such
as transitional Medicaid benefits,\30 child care, and transportation. 

Prior to welfare reform, Georgia had in place an education and
enrollment program that many recognized as innovative.  Since it
began its "Right From the Start" Medicaid outreach project in July
1993, Georgia has aggressively sought Medicaid-eligible individuals. 
To educate and inform the public about Medicaid eligibility, Right
From the Start targets its efforts toward working families unfamiliar
with entitlement programs, pregnant women, households receiving food
stamps, and children under 19 years of age.  Officials we interviewed
indicated that the state plans to enhance its program to target
parents. 

The state also has partnered with businesses and community-based
organizations to gain community recognition and form local referral
networks.  In one Hispanic community, the state's efforts to serve
the community led to a cable television spot.  Outreach efforts also
have led to the state's participation in many community activities,
including health fairs, immunization programs, and the state fair. 
With a statewide, toll-free number and extended staff work
hours--including evenings and weekends--Georgia has also been able to
educate and enroll individuals who might otherwise not have had the
time or access to enroll in Medicaid.  In addition, in cooperation
with a shoe store, Georgia placed informational flyers on Medicaid in
women's and children's shoe boxes.  State officials told us,
following welfare reform, they plan to update their Medicaid
brochures and possibly some of the state's activities so that
families are informed of their continuing entitlement to Medicaid. 

According to state documents, Wisconsin has begun to focus on
maintaining enrollment for Medicaid-eligible individuals in a
post-welfare-reform environment and on helping Medicaid beneficiaries
make appropriate use of health care resources.  To encourage clients
to sign up for Medicaid, the state has created brochures for
distribution to potential and current beneficiaries at county offices
and other locations.  The state also uses hotlines and advocates to
respond to beneficiary questions and concerns about access to
Medicaid.  Since July 1997, the state has been planning for and is
beginning to outstation eligibility workers at additional provider
sites to process Medicaid applications and conduct on-site
eligibility redeterminations. 

Given that Wisconsin's welfare and Medicaid programs are now
separately administered, the state has developed an initiative to
explain eligibility changes to its staff and to Medicaid providers. 
The state plans to use newsletters, Medicaid handbooks, and training
to inform health care professionals who serve Medicaid eligibles of
eligibility issues.  The state also has toll-free numbers that
providers and beneficiaries can call to obtain assistance.  Moreover,
the state provides public and private entities that work with current
or potential Medicaid beneficiaries enhanced support and information
on program eligibility in light of welfare reform.  The state is also
building upon the statewide functions of its managed care enrollment
contractor to include assistance for community agencies that work
with Medicaid eligibles and encounter questions and concerns
regarding Medicaid eligibility. 


--------------------
\30 The Family Support Act of 1988 (P.L.  100-485) added the
requirement that states provide 12 months of Medicaid coverage to
families who lose AFDC eligibility because of increased earnings,
increased hours of employment, or loss of the earned income
disregards.  Medicaid coverage during this period is commonly called
transitional Medicaid.  As components of their welfare demonstration
projects, some states provide transitional Medicaid benefits for more
than 12 months.  Among our nine sample states, three offer
transitional Medicaid for more than 12 months.  Connecticut and New
Jersey offer transitional benefits for 24 months, and Texas offers
benefits for 18 months.  The welfare reform law reauthorized
transitional Medicaid expenditures through 2001. 


   CONCLUSIONS
------------------------------------------------------------ Letter :6

While the 1996 welfare reform law reshaped federal cash assistance
programs, the law also provided states with Medicaid-related
options--options that could have reduced the number of people who
would be eligible for Medicaid.  However, the states we visited made
few structural changes to their Medicaid programs during the first
full year of welfare reform, thereby demonstrating their desire to
maintain Medicaid benefits already in place. 

The Balanced Budget Act also reinstated Medicaid eligibility for many
aliens and disabled children; however, implementation of the act's
provisions was not always smooth and error-free, as was the case when
children were inappropriately terminated from Medicaid in at least
one state.  States that we contacted--especially those that have done
more to separate their welfare and Medicaid programs--raised concerns
about the resulting changes that will be needed for their
administrative systems as they develop separate eligibility
determination processes.  While it is unclear how extensive or
expensive these system adaptations will be, this is an issue that
will bear watching over time--particularly to ensure that Medicaid
eligibility determinations and redeterminations made apart from
welfare decisions are accurate.  Some states also believe that the
welfare reform provision allowing them to privatize cash assistance
eligibility determinations, while being silent on Medicaid and other
federal means-tested programs, is problematic for states that wish to
delegate all client case management services to private contractors. 

Finally, welfare reform poses additional challenges for states to
educate and enroll individuals who are eligible for Medicaid.  States
we visited generally recognized the need to educate beneficiaries of
their Medicaid eligibility apart from their eligibility for welfare
and to protect Medicaid beneficiaries from inappropriate
terminations.  State officials also recognized the importance of
adapting their education and enrollment efforts to better identify
and enroll Medicaid-eligible individuals now that the automatic link
between cash assistance and Medicaid no longer exists.  However,
implementing effective approaches to identify and enroll potential
Medicaid beneficiaries and to prevent inappropriate terminations will
be a continuing challenge for states. 


   AGENCY AND OTHER COMMENTS
------------------------------------------------------------ Letter :7

We provided a draft of this report to the Administrator of HCFA.  We
also provided a draft to Medicaid and welfare officials in each of
the nine states we visited and to independent experts and researchers
from the American Public Welfare Association and The George
Washington University's Center for Health Policy Research.  A number
of these officials provided technical or clarifying comments, which
we incorporated as appropriate.  Others offered additional
perspectives, which are summarized below. 

In discussing our report findings, HCFA officials acknowledged that,
in some cases, states beginning to use the welfare reform law's new
flexibility also found increased administrative complexity for their
Medicaid programs.  HCFA officials pointed out, however, that this
tension between the states' desire for administrative ease and the
Congress' intention to preserve Medicaid eligibility for selected
populations was not unexpected.  Recognizing the potential new costs
accompanying this policy change, the Congress provided additional
funds to help states make the necessary initial administrative
adjustments. 

The Director of the Center for Health Policy Research commented
that--beyond our discussion of issues associated with redetermining
Medicaid eligibility for individuals losing SSI--additional attention
is needed on the issue of appropriately functioning Medicaid
redetermination procedures.  Because the basis of Medicaid
eligibility frequently changes--particularly for children--and the
states' welfare reform initiatives could speed up this "churning"
process, the procedures that states use to redetermine eligibility
need to ensure uninterrupted coverage for those who qualify under
alternative categories.  She also noted that if the Medicaid
redetermination systems cannot work properly, policymakers may need
to devise other methods. 

In terms of outreach and enrollment initiatives in a
post-welfare-reform environment, Wisconsin officials offered a
perspective on its own program that is pertinent to other states. 
They stated that their experience in developing an outreach plan for
Medicaid is a dynamic one that is being continually adjusted as new
issues are identified and new stakeholders become involved.  The
landscape continues to change as the transition is made from AFDC to
TANF, as significant changes are made to state administrative and
automated systems, and as the new State Children's Health Insurance
Program is designed and implemented. 


---------------------------------------------------------- Letter :7.1

As arranged with your office, unless you announce its contents
earlier, we plan no further distribution of this report until 30 days
after its issuance date.  At that time, we will send copies to the
Secretary of Health and Human Services, the Administrator of HCFA,
the directors of the state programs we visited, and interested
congressional committees.  Copies of this report will also be made
available to others upon request. 

If you or your staff have any questions about the information in this
report, please call me at (202) 512-7114.  Other contributors were
Enchelle D.  Bolden, Shaunessye D.  Curry, Barbara A.  Mulliken,
Karen M.  Sloan, and Craig H.  Winslow. 

Sincerely yours,

Kathryn G.  Allen
Associate Director, Health Financing
 and Systems Issues


SCOPE AND METHODOLOGY
=========================================================== Appendix I

To describe the Medicaid-related welfare reform options contained in
the Personal Responsibility and Work Opportunity Reconciliation Act
and the states' approaches to those options, we analyzed the law and
interviewed officials from HCFA's former Medicaid Bureau and Office
of Research and Demonstration in Baltimore, Maryland.  (In a
subsequent reorganization, HCFA established the Center for Medicaid
and State Operations.) We also interviewed issue area experts,
including those representing the American Public Welfare Association
and The George Washington University's Center for Health Policy
Research.  We judgmentally chose nine states--California,
Connecticut, Florida, Georgia, Iowa, New Jersey, New York, Texas, and
Wisconsin--to include in our study because of the amount of their
Medicaid expenditures, varying beneficiary demographics, diverse
geographic locations, and differing degrees of welfare reform
experience.  These states accounted for over 46 percent of fiscal
year 1996 Medicaid expenditures and included states among the highest
(Connecticut) and lowest (California) per capita Medicaid
expenditures.  These states also collectively accounted for 78
percent of the aliens receiving federal cash assistance, according to
the Social Security Administration's 1996 statistics.  Although these
states are illustrative of the actions states are taking nationwide,
the results of our 9-state survey cannot be projected to all 50
states. 

To collect consistent information on (1) states' Medicaid-related
choices, (2) implications of those choices on Medicaid eligibles and
state administrative procedures, and (3) steps states have taken or
plan to take to educate and enroll Medicaid eligibles, we developed a
standardized protocol.  We pretested the protocol in Iowa and Florida
and revised the protocol based on those tests.  The revised protocol
was our primary data collection instrument, which guided our site
visits to the nine states and our interviews with high-level
officials having knowledge of Medicaid and welfare eligibility
policies and procedures.  We completed our on-site visits in June
with subsequent follow-up contacts through January 1998.  We also
discussed the implications of the states' actions with
representatives from several advocacy groups including the Children's
Defense Fund, the National Health Law Program, and the National
Immigration Law Center. 

We also used the protocol to collect information on the nine states'
Medicaid beneficiary education and enrollment efforts.  We identified
the states' current methods, planned program changes, as well as the
Medicaid education and enrollment challenges they face.  We also
reviewed current materials to identify the type of Medicaid
information states used to educate Medicaid eligibles.  We further
discussed with representatives from the Southern Institute on
Children and Families, the National Governor's Association, and the
Center on Budget and Policy Priorities their concerns about
beneficiary education and enrollment. 


NINE STATES' INCOME AND RESOURCE
STANDARDS
========================================================== Appendix II

Income and resource standards were among the financial criteria that
welfare officials used to determine applicant eligibility for AFDC
and for Medicaid coverage that accompanied cash assistance.  These
standards represented the upper limits of earned and unearned income,
such as child support, as well as the value of assets a family could
have to qualify for cash assistance.  Because each state sets its own
standards, the amount of income and assets families could have and
still qualify for AFDC varied among the states.  Table II.1 shows the
income and resource standards for the nine states we visited. 



                         Table II.1
          
          Nine States' Monthly Income and Resource
              Standards for a Family of Three,
                       September 1997

                   Medicaid                  TANF
            ----------------------  ----------------------
                Income    Resource      Income    Resource
State       standard\a  standard\b  standard\a  standard\b
----------  ----------  ----------  ----------  ----------
California        $934     $2,000-        $735     $2,000-
                             3,000                   3,000
Connecticu         872       3,000         872       3,000
 t
Florida          1,111       2,000       1,111       2,000
Georgia            424       1,000         424       1,000
Iowa               849       2,000         849       2,000
New Jersey         985       1,000         636       2,000
New York\c         577       1,000         577      2,000-
                                                     3,000
Texas              751       1,000         751       1,000
Wisconsin          647       1,000       1,278       2,500
----------------------------------------------------------
\a These figures represent the states' need standards. 

\b We did not include state vehicle allowances in these figures. 

\c New York's income and resource standards vary by district.  These
figures represent the standards for a New York City family with heat
included in the rent. 

Source:  GAO analysis based on data from states and the American
Public Welfare Association. 

Seven states reported having the same income or resource standards
for their Medicaid and TANF programs.  Five states--Connecticut,
Florida, Georgia, Iowa, and Texas--have common income and resource
standards for their programs, while New York uses a common income
standard and California uses a common resource standard.  Officials
in these states thought it important and administratively efficient
to maintain some comparability between the programs, at least during
this first year of welfare reform. 

Two states--California and New Jersey--have more generous income
standards for Medicaid than for their cash assistance programs.  A
California family of three may have a monthly income of $934 plus
allowances for work and child care expenses and be eligible for
Medi-Cal--the state's Medicaid program.  To qualify for CalWORKS, the
state's TANF program, the same family may have no more than $735 in
income.\31 A New Jersey family of three may have a monthly income of
$1,822, which is 185 percent of the state's need standard, and
qualify for Medicaid.  However, applicants for Work First New Jersey,
the state's TANF program, are limited to a monthly income of $954,
which is 150 percent of the state's $636 maximum benefit payment for
a family of three. 

In contrast, we found that Wisconsin's welfare experimentation led to
less generous income and resource standards for Medicaid than for
W-2, the state's TANF program.\32 Under W-2, families may have assets
up to $2,500, vehicle equity up to $10,000, and earned income up to
115 percent of the federal poverty level--about $1,278 per month for
a family of three.  Under Medicaid, however, family resources are
limited to $1,000, vehicle equity to $1,500, and net income to less
than $520 per month (based on the state's former AFDC need and
payment standards).\33

RELATED GAO PRODUCTS

Welfare Reform:  States' Efforts to Expand Child Care Programs
(GAO/HEHS-98-27, Jan.  13, 1998). 

Welfare Reform:  State and Local Responses to Restricting Food Stamp
Benefits (GAO/RCED-98-41, Dec.  18, 1997). 

Social Service Privatization:  Expansion Poses Challenges in Ensuring
Accountability for Program Results (GAO/HEHS-98-6, Oct.  20, 1997). 

Supplemental Security Income:  Review of SSA Regulations Governing
Children's Eligibility for the Program (GAO/HEHS-97-220R, Sept.  16,
1997). 

Child Support Enforcement:  Strong Leadership Required to Maximize
Benefits of Automated Systems (GAO/AIMD-97-72, June 30, 1997). 

Welfare Reform:  Three States' Approaches Show Promise of Increasing
Work Participation (GAO/HEHS-97-80, May 30, 1997). 

Welfare Reform:  Implications of Increased Work Participation for
Child Care (GAO/HEHS-97-75, May 29, 1997). 

Welfare Reform:  States' Early Experiences With Benefit Termination
(GAO/HEHS-97-74, May 15, 1997). 

Food Stamp Program:  Characteristics of Households Affected by Limit
on the Shelter Deduction (GAO/RCED-97-118, May 14, 1997). 

Health Insurance for Children:  Declines in Employment-Based Coverage
Leave Millions Uninsured; State and Private Programs Offer New
Approaches (GAO/T-HEHS-97-105, Apr.  8, 1997). 

Welfare Waivers Implementation:  States Work to Change Welfare
Culture, Community Involvement, and Service Delivery
(GAO/HEHS-96-105, July 2, 1996). 

Health Insurance for Children:  Private Insurance Coverage Continues
to Deteriorate (GAO/HEHS-96-129, June 17, 1996). 


--------------------
\31 CalWORKS eligibility is based on the state's minimum basic
standard for adequate care, which is somewhat comparable to the need
standard, plus nonfinancial criteria. 

\32 As part of a proposed new health insurance program for low-income
families, Wisconsin is attempting to make its Medicaid income and
resource standards comparable to or higher than its TANF standards. 

\33 While Wisconsin's monthly need standard is $647, as shown in
table II.1, the state's payment standard is $518 per month. 


*** End of document. ***