Revised August 19, 1998
Taking the Next Step:
States Can Now Expand Health Coverage to Low-Income
Working Parents Through Medicaid
by Jocelyn Guyer and Cindy Mann
The federal welfare law enacted in August of 1996 gives states a little-recognized opportunity to use Medicaid to provide health care coverage to low-income working parents, a population at high risk of being uninsured. This opportunity could provide an important tool for states seeking to support families that are struggling to get by at low-wage jobs with no health insurance coverage. Because this new opportunity is a Medicaid option, the federal government will finance anywhere from 50 percent to 80 percent of the cost of the coverage for low-income parents, with the exact portion determined by each state's regular Medicaid matching rate.
This issue brief describes the new opportunity and explores some of the reasons why many states are looking for ways to expand coverage to low-income working parents.(1)
Low-Income Working Parents Are at High Risk of Being Uninsured
Nearly half (48.8 percent) of all parents in families with earnings of at least $5,150 a year (equivalent to half-time, full-year work at the minimum wage) but with income still below the federal poverty line are uninsured.(2) There is thus good reason for states to consider ways to extend coverage to poor and near-poor working parents.
Why Are So Many Low-Income Working Parents Uninsured?
Low-income working parents are at high risk of being uninsured because often their jobs do not offer health insurance, and in most states they are ineligible for publicly funded health insurance coverage.
Limited Access to
While the vast majority of non-elderly adults can look to their employers for health insurance coverage, the majority of workers in low-wage jobs cannot. In 1996, only 43 percent of workers making $7 or less per hour were offered health insurance coverage by their employers.(3) Moreover, a growing share of low-wage workers who are offered coverage cannot afford to take up the offer they cannot afford the premiums, deductibles, or co-payments they must pay to take advantage of the coverage offered by their employers.
Limited Access to
Publicly Funded Coverage
Low-income working parents also have little or no access to publicly funded coverage in most states. While states have expanded Medicaid coverage for the children in low-income working families in recent years, the parents in these families generally remain ineligible for Medicaid.(4)
Most parents who are covered by Medicaid qualify under an eligibility group established in the 1996 welfare law which replaced the automatic eligibility link between Aid to Families with Dependent Children and Medicaid. Under the new eligibility group parents can qualify for Medicaid if they meet the income and resource standards and conform to certain of the family composition rules that a state used to determine eligibility under its AFDC program on July 16, 1996.(5) These standards generally limit eligibility to parents with incomes well below the poverty line parents in families with earnings become ineligible for Medicaid when their incomes are still 55 percent below the federal poverty level ($6,143 for a family of three) in the median state. Moreover, under these standards a parent typically must have countable resources of less than $1,000.
Some low-income working parents may be eligible for coverage through Transitional Medicaid Assistance. TMA allows families that are on Medicaid and that would otherwise lose coverage because of an increase in earnings to continue to receive coverage for up to 12 months.(6)
The major shortcoming of TMA is that in order to qualify for it a family must first receive Medicaid under the July 16, 1996, AFDC income and resource standards described above. Thus, a parent whose income in recent months has not been low enough for her to meet these standards is ineligible for TMA even though her earnings may be very low and she may have no health insurance coverage. Moreover, TMA is time-limited and conditioned on a parent's ability to meet extensive reporting requirements that burden parents and states alike. Although few empirical data are available, it appears that only a small portion of families eligible for TMA coverage may be receiving it.(7)
Given the stringent income and resource standards that operate in most states for parents in need of Medicaid and the limited access of parents in low-wage jobs to employer-sponsored coverage, it is not surprising that large numbers of low-income working parents are uninsured.
What Is the New Opportunity?
The opportunity to expand Medicaid to low-income working parents arises primarily from the broad flexibility accorded states to define what counts as income and resources when they determine Medicaid eligibility for families.(8)
The federal law requires states to disregard (i.e., not count) certain kinds and amounts of income and resources when calculating a family's countable income and resources. Eligibility is determined by comparing countable income and resources with the state's July 16, 1996 AFDC income and resource standards. For example, states are required to disregard $90 in earnings each month to help parents cover some of the expenses associated with working, such as transportation costs. Thus, a parent who earns $400 a month is treated as having countable income of $310 ($400 - $90 = $310).
The opportunity to expand coverage for working parents arises because the law offers states the option of setting their own income and resource disregards above the federal minimum standards when determining the Medicaid eligibility of families.(9) For example, a state can double the $90 earnings disregard and thus treat a parent who earns $400 a month as having countable income of $220 ($400 - $180). The following example illustrates how the flexibility granted to states to adopt alternative definitions of what counts as income or resources can be used to expand coverage to working parents more broadly.
An Example: Covering Working Parents
with Income Below Poverty
Consider a state that covers a mother with two children if her countable income falls below the state's July 16, 1996 income standard of $463 per month (or about 41 percent of the federal poverty line). If the state wants to expand Medicaid to working parents with income below the federal poverty line ($1,138 a month for a family of three in 1998), it could establish a larger disregard for earned income.(10) If it adopted an earned income disregard of $676 per month, a family of three with earnings at the poverty line would be treated for purposes of Medicaid eligibility as having countable income of $462 a month ($1,138 - $676 = $462). The family, therefore, would be eligible for Medicaid under the state's July 16, 1996 income standard of $463 a month.
Gross earnings (federal
poverty level for family of 3)
$1,138 Expanded disregard for earnings - $676 Countable income $462 Eligibility threshold $463
There is no dispute about states' authority to adopt broader disregards to expand Medicaid eligibility. For example, the Health Care Financing Administration has approved Pennsylvania's decision to disregard 50 percent of earnings for parents who find work while they are receiving Medicaid. Earlier this year Rhode Island enacted legislation expanding Medicaid to parents with income up to 185 percent of the federal poverty level, using its authority to define what counts as income as a basis for the expansion. Moreover, states already have extensive experience using their flexibility to define what counts as income or resources to expand Medicaid for other populations. In the past, states have used a provision directly parallel to the new option to expand coverage for children and pregnant women.(11)
Additional Examples of How States Can Use the New Opportunity
- To expand coverage to working parents with income below 150 percent of poverty (by disregarding a larger portion of earnings)
- To provide extended transitional Medicaid assistance to parents entering the workforce (by providing a time-limited disregard for earnings)
- To eliminate the resource test for families (by disregarding assets)
Reasons to Consider Covering Working Parents
The concern that low-income working parents are at high risk of being uninsured is not the only reason states have for expanding Medicaid coverage to working parents. Some further reasons are the following:
- Federal Medicaid Matching Funds Are Now Available In the past, states could provide health insurance coverage to working parents only if the states were willing to use their own funds entirely or to pursue a waiver of federal law that would allow them to expand Medicaid to this population. The new option allows states to receive federal Medicaid matching funds to expand coverage for this group without a waiver. The federal government will finance anywhere from 50 percent to 77 percent of the cost of expanding coverage for low-income parents, with the exact portion determined by each state's regular Medicaid matching rate.
- The Number of Uninsured, Low-Income Working Parents Is Likely to Grow Over the next several years, the number of parents working in low-wage jobs is likely to increase as welfare caseloads continue to contract because of new welfare program requirements and the strong economy. Many of the parents who leave welfare will become uninsured. According to a 1997 review of the literature, studies "show unequivocally that fewer than half of women who leave welfare have health insurance three years later."(12) More recent studies of families that have left welfare in Indiana and South Carolina also have found that half or more of parents are uninsured in the months after they leave welfare, even though a vast majority are working.
- Coverage Promotes Work and May Reduce the Need for Welfare Providing ongoing health care coverage to low-income working parents will make leaving welfare and entering the low-wage job market a more viable option for many parents. Moreover, the opportunity to receive regular health care could promote job retention among low-income working parents by helping them to avoid illnesses that might cause them to miss work. For some parents in need of ongoing medical care, coverage will eliminate the need to choose between forgoing essential health care in order to keep a job and leaving a job to qualify for Medicaid.
- It Gives Low-Income Working Parents the Same Access to Health Care as Parents Who Are Not Employed In the past, the policy of offering Medicaid only to families who were receiving welfare (with narrow exceptions) meant that low-income working parents were uninsured at much higher rates than their unemployed counterparts. One study found that in the early 1990s working single mothers with income below 200 percent of poverty were uninsured at twice the rate of their non-working counterparts.(13) More recent data also indicate that poor parents with earnings are more likely to be uninsured than poor parents with little or no earnings in 1996 among poor adults living in households with children, 48.8 percent of those making at least $5,150 a year were uninsured compared with 29 percent of such adults with no earnings or earnings below $5,150 a year.(14) While a parent now can qualify for Medicaid without going on welfare, she still must have extremely low income in most states, making it hard for an employed parent to qualify for coverage. States that expand coverage under the new opportunity will be addressing this inequity by giving working parents more access to coverage.
New Regulation Allows All States to Expand Medicaid to
Low-Income Working Parents in Two-Parent Families
On August 7, the Department of Health and Human Services issued a regulation that eliminated a barrier to expanding Medicaid to adults in two-parent families. Prior to this action, all states could use the opportunity contained in the 1996 welfare law to expand Medicaid to low-income working adults in single-parent families, but twenty states and the District of Columbia were barred by an old welfare regulation known as the "100 hour rule" from expanding coverage to such adults in two-parent families.
The 100-hour rule, which was a remnant of the old AFDC system, required states to limit Medicaid eligibility to those two-parent families in which the principal wage earner worked fewer than 100 hours a month. The majority of states were not affected by this restriction because they had secured statewide waivers of the 100-hour rule from the Department of Health and Human Services prior to enactment of the welfare law. But, the District of Columbia and the 20 states without waivers, would have been severely limited in their ability to expand Medicaid to two-parent families in the absence of the new option to change the 100-hour rule.
The new regulation allows states to adopt less restrictive rules for deciding when two-parent families will be eligible for Medicaid. For example, a state could decide not to impose any limit on the number of hours that the principal wage earner in a family works when determining whether two-parent families are eligible for Medicaid. As President Clinton noted when announcing the change, its effect "is to allow all states to continue to provide Medicaid coverage to two-parent families after a parent takes a full-time job."
Low-income working parents are at high risk of being uninsured because their jobs often do not offer affordable employer-sponsored coverage, and in most states they have very limited access to Medicaid. If states do not take action, the number of uninsured low-income parents is likely to grow as changes in welfare programs and the strong economy increase the number of parents in low-wage jobs that do not offer health insurance. States now have the opportunity to receive federal matching funds to address the problem by expanding Medicaid coverage for low-income working parents. States that expand Medicaid will be offering vital support to low-income working parents, allowing many either to avoid having to apply for welfare or to shorten their stays on cash assistance. This will assure more equitable treatment for families that are trying to survive in the low-wage job market.
1. For a more detailed discussion of these issues and an explanation of the new opportunity, see Jocelyn Guyer and Cindy Mann, Taking the Next Step: States Can Now Take Advantage of Federal Medicaid Matching Funds to Expand Health Care Coverage to Low-income Working Parents (Washington, D.C.: Center on Budget and Policy Priorities, August 1998).2. Based on Center analysis of 1997 March Current Population Survey data. "Parents" include all family heads and their spouses living in households with children.
3. Philip F. Cooper and Barbara Steinberg Schone, "More Offers, Fewer Takers for Employment-Based Health Insurance: 1987 and 1996," Health Affairs, 16(6) (1997). The percentage of workers with wages at or below $7 per hour who have "access" to employer-based coverage is somewhat higher 55 percent in 1996 because some low-wage workers are offered coverage through the employer of a family member.
4. Federal law requires states to provide Medicaid to children under the age of six with family income below 133 percent of the poverty line, as well as to older children born after September 30, 1983, with family income below 100 percent of poverty. The requirement to phase in coverage of older children assures that by the year 2002 all poor children under the age of 19 will be eligible for Medicaid. These are federal minimum requirements; a majority of states have expanded coverage above these eligibility standards, and more can be expected to do so as a result of the child health block grant included in the Balanced Budget Act of 1997.5. Parents who are pregnant, disabled or who have high medical bills may also be eligible at higher income levels.
6. Federal law requires states to extend Medicaid to families that otherwise would lose coverage because of an increase in earnings, the lapse of an "earnings disregard," or an increase in child support. Medicaid coverage for families that otherwise would lose eligibility because of child support income continues for four months, while coverage for families that otherwise would lose eligibility because of earnings continues for six months and must be extended for an additional six months if the family's gross income (less child care expenses) is below 185 percent of the federal poverty line. Twelve states have received waivers to extend TMA for longer than 12 months. See Jan Kaplan, Transitional Medicaid Assistance (Washington, D.C.: Welfare Information Network, December 1997).
7. A recent survey of former welfare recipients conducted by the state of South Carolina found that half of the adults who left welfare in April, May and June of 1997 were uninsured when surveyed in February, March and April of 1998. The vast majority of these adults are likely to have met TMA eligibility criteria. They were generally receiving Medicaid when on welfare and 75 percent of them reported that they left welfare because they earned too much money.
8. States also have the option to increase their income and resource standards by as much as the increase in the consumer price index since July 16, 1996. But, this generally represents a less important opportunity to expand coverage since the CPI cap allows for only a small change in standards over time.
9. See section 1931(b)(2)(c) of the Social Security Act. Since children in low-income working families generally are already eligible for Medicaid under other categories, an expansion of coverage under section 1931 will primarily help the parents in such families. In some states, older children without alternative routes to coverage may also benefit from an expansion of coverage under section 1931.
10. Under this approach, the amount of the disregard would vary by family size to allow the effective eligibility standard to correspond to the poverty line for families of all sizes. To prevent eligibility from eroding over time, the size of the disregard and/or the state's income threshold would need to be adjusted to reflect yearly changes in the federal poverty level. For example, New York recently adopted a Medicaid disregard policy is adjusted annually to assure continued Medicaid coverage of working poor parents.
11. Section 1902(r)(2) of the Social Security Act.
12. Robert A. Moffitt and Eric P. Slade, Health Care Coverage for Children Who Are on and off Welfare, The Future of Children, Welfare to Work, Volume 7, No. 1 (California: The David and Lucile Packard Foundation, 1997).
13. Pamela Farley Short, Medicaid's Role in Insuring Low-Income Women (New York: The Commonwealth Fund, May 1996).
14. Center calculations based on data from the March 1997 Current Population Survey.