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The Medicaid Eligibility Maze

Coverage Expands, but Enrollment Problems Persist

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Document date: December 01, 1999
Released online: December 01, 1999

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

Note: This report is available in its entirety in the Portable Document Format (PDF).

Executive Summary

For the first time in almost a decade, Medicaid enrollment for children and their parents began to decline in 1996, dropping by 2 percent from 1995. These declines in Medicaid enrollment are closedly associated with welfare reform policies and dramatic reductions in the number of people receiving welfare. Policymakers have made provisions through Section 1931 of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) to ensure that poor families who leave welfare remain enrolled in Medicaid. In addition, opportunities for low-income children in working families to enroll in Medicaid have grown through poverty-related expansions and the new State Children's Health Insurance Program. Despite these measures, however, it appears that many children and their parents who are eligible for Medicaid coverage have not enrolled.

This report examines Medicaid eligibility policies and operations in five states— California, Colorado, Florida, Minnesota, and Wisconsin—following initial changes introduced by PRWORA and the new Children's Health Insurance Program (CHIP), which was part of the Balanced Budget Act of 1997. The study was motivated by concerns about national Medicaid enrollment declines that began in 1996 and could be related to welfare reform. Findings are based on interviews with state-level Medicaid and welfare staff, as well as supervisors and eligibility technicians in two large counties in each state.

All five study states have expanded health care coverage in response to options in the PRWORA and CHIP legislation. In four of the states, all children with family income from 185 to 200 percent of the federal poverty level (FPL) are now eligible for either Medicaid or CHIP, while child coverage in Minnesota extends to 275 percent of the FPL for children (slightly higher for those under age two). Minnesota and Wisconsin have also made equivalent expansions for parents, using state monies, Section 1115 waivers, and enrollee premiums. The other three states have increased Medicaid coverage for parents to a lesser degree, using some (but not all) of the flexibility allowed in PRWORA.

It is too early to tell whether these expansions will be sufficient to reverse recent declines in Medicaid enrollment. From 1995 to 1998, for example, monthly Medicaid enrollment declined 12 percent in California, 18 percent in Florida, and 29 percent in Wisconsin (comparable data were not available on the decline for Colorado). Even Minnesota, with one of the most expansive Medicaid programs among states, reported only a modest increase (1 percent) over this period. These declines are troublesome because the number of uninsured persons rose during this period.

Study findings suggest that eligibility policy expansions alone may not prevent Medicaid enrollment declines. The report discusses several problem areas affecting Medicaid eligibility and enrollment operations.

Challenges in Severing Medicaid and Welfare

Congress tried to minimize any adverse effects of federal welfare reform on Medicaid by severing the mandatory linkage of welfare and Medicaid eligibility rules. However, welfare staff continue to play a critical role in educating families about Medicaid policies. They are pivotal to making sure families who are formally or informally diverted from welfare apply for Medicaid, and they are also responsible for helping families who no longer receive welfare benefits continue on Medicaid. Yet they struggle with these responsibilities, because Medicaid priorities for maintaining or expanding enrollment can seem to conflict with the objective of reducing welfare dependency. Since welfare and Medicaid are usually administered by different state agencies, local welfare staff are not adequately trained in Medicaid policies or objectives. Many welfare staff mentioned that Medicaid was too complicated now for them to understand, much less try to explain to clients who are primarily focused on getting cash assistance benefits. As a result, low-income families may have trouble understanding that welfare and Medicaid are now severed, or independent of one another, and some families are reported to believe that the new welfare rules extend to Medicaid.

Complex Rules and Procedures

The incremental policy changes resulting from federal legislation, state decisions, and litigation (in some instances) have created very complicated Medicaid eligibility rules in most of the states. Though well intentioned, these rules create barriers to program participation by making the eligibility process difficult for Medicaid applicants and beneficiaries, as well as staff, to understand. Ironically, the Section 1931 rules (which implement PRWORA and cover the poorest families) are often the most confusing, while the rules are simpler for children in higher-income families (whose income is above state welfare thresholds). Three areas of confusion are the steps for determining transitional Medicaid coverage for working families, the impact on Medicaid eligibility when families fail to meet welfare reporting requirements, and differences in income disregards across eligibility groups.

States are especially concerned about sharp declines in the immigrant participation rates for Medicaid. PRWORA made changes in the eligibility of immigrants for Medicaid and other entitlement programs that have caused many immigrant families to believe erroneously that they no longer qualify for any Medicaid benefits, or made them afraid to apply for coverage. The legislation also added to the complexity of the eligibility determination process for immigrants by increasing the number of steps involved in verifying immigration and citizenship status.

In all five states, the CHIP legislation has helped expand child health care coverage. However, the three study states that established separate CHIP programs have also added complexity by leaving Medicaid income thresholds for children variable by the age of the child. As a result, there will be some low-income families with children in both Medicaid and the separate CHIP program. Staff are concerned about the difficulty of explaining to these families that they will have to go through two different organizations for redeterminations, that CHIP and Medicaid may use different providers and delivery systems, and that CHIP may impose different cost-sharing requirements than Medicaid.

All the study states now allow mail-in applications for children applying only for Medicaid or CHIP benefits. However, more lengthy application forms and face-to-face meetings with staff continue to be required in most states if parents or entire families are seeking coverage. In addition, few states have simplified the annual redetermination process, so that families have to complete lengthy forms that provide information they have submitted previously. Three of the five states still require face-to-face visits if eligibility is being redetermined for parents or entire families.

Perhaps because of these requirements, many enrollees drop out of the Medicaid program even though they may still qualify, including families leaving welfare for work. It is not clear whether these dropouts understand that they could continue to be eligible or whether they consider the value of Medicaid benefits not worth the effort involved with the eligibility process. Continuity in Medicaid enrollment has not been a Medicaid priority, and states are just beginning to focus on why seemingly eligible children and families drop out of coverage and become uninsured. In addition, program rules do not smooth the transition from Medicaid to employer-sponsored insurance coverage.

Systems and Communication Inadequacy

Due to the complexity of the eligibility rules, most states depend heavily on their automated eligibility determination systems (which handle applications for Medicaid, welfare, and food stamps) to establish Medicaid eligibility. Yet these systems, which manage much of the communication with applicants and beneficiaries, are inadequate, primarily because they are designed and operated to meet welfare, not Medicaid, needs. In every state, staff complained that these system inadequacies can contribute to confusion among Medicaid applicants and beneficiaries and, occasionally, erroneous terminations in Medicaid coverage. Respondents were especially unhappy with the systems-generated notices and other correspondence sent to applicants and beneficiaries, which are often legalistic and difficult to understand. Medicaid staff reported that the management of the automated eligibility systems is beyond their control and that they are not able to have Medicaid needs addressed in a timely and comprehensive manner. However, it also seems that automated eligibility systems have not been a Medicaid priority, at either the state or the federal level.


States are hoping that CHIP outreach efforts will help them address Medicaid enrollment declines. However, study findings suggest that Medicaid enrollment problems go beyond the need for better outreach. States may want to reassess their Medicaid eligibility requirements and systems to make them more efficient, accessible, and understandable to consumers. Simpler rules, shorter application and redetermination forms (for everyone), easier-to-understand notices, and greater use of mail and telephone could help considerably. With the 1931 provisions, states have considerable latitude to modify their eligibility policies and procedures for covering entire families and working parents. States could also consider improvements to their automated eligibility systems, using the enhanced federal matching funds available through PRWORA for systems improvements.

At both the state and federal levels, more coordination between welfare and Medicaid is needed, since welfare continues to be the doorway through which many families first become enrolled in Medicaid. Planning for health insurance should become a greater part of welfare reform. It is critical that families diverted from welfare, or those going from welfare to work, understand the availability of Medicaid coverage.

Medicaid enrollment levels, as well as estimated participation rates, need to be reported on a more frequent and current basis. More timely numbers would help focus attention on the problems of inappropriate enrollment declines. Special attention may be warranted in counties or states that report particularly large welfare declines to ensure that Medicaid coverage is appropriately maintained.

Enrollment declines are compelling states to clarify what long-term objectives they are trying to reach with their Medicaid eligibility policies, similar to the rethinking that guided welfare reform efforts. The new focus in some states is to strive to enroll all qualified low-income families in Medicaid and to keep them enrolled, as long as they do not have access to any other source of affordable health insurance. Not all states are comfortable with the idea that Medicaid might become a long-term health insurance program for the poor, including the working poor. The uneasiness states feel about the future direction of Medicaid eligibility is particularly apparent in states that are opting for separate CHIP programs. Whatever approaches states elect to follow with their health insurance coverage policies and procedures, careful monitoring and research will be required to ensure that state decisions are not unintentionally contributing to further increases in the uninsured population.

Note: This report is available in its entirety in the Portable Document Format (PDF).

Topics/Tags: | Children and Youth | Health/Healthcare

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