Number A-37 in Series, "New Federalism: Issues and Options for States"
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.
This series is a product of Assessing the New Federalism, a multi-year project to monitor and assess the devolution of social programs from the federal to the state and local levels. Alan Weil is the project director. The project analyzes changes in income support, social services, and health programs and their effects. In collaboration with Child Trends, the project studies child and family well-being.
The project has received funding from The Annie E. Casey Foundation, the W.K. Kellogg Foundation, The Robert Wood Johnson Foundation, The Henry J. Kaiser Family Foundation, The Ford Foundation, The John D. and Catherine T. MacArthur Foundation, the Charles Stewart Mott Foundation, The David and Lucile Packard Foundation, The McKnight Foundation, The Commonwealth Fund, the Stuart Foundation, the Weingart Foundation, The Fund for New Jersey, The Lynde and Harry Bradley Foundation, the Joyce Foundation, and The Rockefeller Foundation.
Note: This report is available in its entirety in the Portable Document Format (PDF).
The number of Americans who received health insurance through the Medicaid program at any time during a given year increased from 28.9 million in federal fiscal year 1990 to 41.7 million in 1995.1 This growth was fueled by federal and state policies designed to expand Medicaid eligibility, particularly for pregnant women and children, and by an economic downturn that increased the number of people in need. However, Medicaid reached a turning point in 1996, as participation dropped. In 1997, the last year for which Medicaid participation reports from all the states are available, Medicaid participation continued to fall to 40.6 million people, so that 1.1 million fewer people were covered. Recent census data indicate that Medicaid caseloads continued to fall in 1998.
An earlier article discussed the close connection between reductions in Aid to Families with Dependent Children (AFDC) caseloads and Medicaid participation through 1996 (Ellwood and Ku 1998). This brief addresses the continuing erosion of Medicaid coverage through 1997, the year after Congress passed the federal welfare reform law—the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA).
While the passage of the federal welfare reform law is an important part of the policy context in which the recent caseload declines occurred, the Medicaid caseload changes discussed here are not necessarily the result of this law. Welfare and Medicaid caseloads were already falling when PRWORA was enacted, and most states had already implemented major welfare policy changes under state welfare reform waivers. Indeed, PRWORA severed the direct link between welfare and Medicaid eligibility, seeking to prevent the loss of Medicaid coverage. While PRWORA was passed in August 1996, many states had not implemented all of its provisions as of 1997. Finally, these policy changes took place against a backdrop of economic growth and low unemployment, factors that could also reduce Medicaid enrollment.
A Brief History of Recent Medicaid Eligibility Policies
From 1984 to 1990, many changes in federal and state Medicaid policies were made to broaden Medicaid coverage. Most noteworthy were the poverty-related expansions covering pregnant women, infants, and children—changes that were motivated by concerns about infant mortality and poor child health.2 Medicaid coverage of the disabled grew when the Supplemental Security Income (SSI) program broadened eligibility for children, particularly those with learning disabilities, as a result of the Supreme Court's 1990 decision in Sullivan v. Zebley and changes in allowable child disabilities.
These policy changes, along with a weak economy in the early 1990s, fueled steady and often large increases in Medicaid participation between 1990 and 1995, with an average annual growth rate of 7.6 percent per year. During this time, state and local agencies implemented the new policies, particularly the phased-in, poverty-related expansions for children. These enrollment increases helped to fuel double-digit growth in Medicaid spending in the early 1990s.
In light of states' fiscal difficulties, the federal government avoided further mandates to expand Medicaid coverage after 1990 and the locus of control shifted to the states. A handful of states, like Hawaii, Oregon, Rhode Island, and Tennessee, used Section 1115 waivers to expand Medicaid eligibility. A few others, like Vermont, expanded children's eligibility using Section 1902(r)(2) options.3 Although there were some Medicaid eligibility expansions in the early 1990s, these were primarily state initiatives.
Also in the early 1990s, most states embraced welfare reform and adopted state waivers to decrease welfare dependency, initiating tougher AFDC requirements (such as stronger work requirements, time limits, and family caps) as well as policies like higher earnings disregards to let people keep more of their earnings. As a result, national AFDC caseloads began falling after 1994. The strong national interest in welfare reform led to PRWORA's 1996 enactment. This new law replaced AFDC with Temporary Assistance for Needy Families (TANF) and codified the policy of state flexibility in welfare management.
While Congress was aware that welfare reform would shrink welfare caseloads, it did not intend to reduce Medicaid at the same time, so it "delinked" welfare and Medicaid eligibility so that those affected by time limits or similar policies would not lose Medicaid.4 Section 1931 gave states flexibility to expand eligibility for families beyond traditional welfare limits (Guyer and Mann 1998). In addition, PRWORA affected other aspects of Medicaid eligibility, such as changes in the SSI program and in the general eligibility of immigrants for public benefits (discussed later).
In August 1997, Congress passed the major expansion of the decade, the Children's Health Insurance Program (CHIP), which lets states expand health insurance for uninsured children. Again, state flexibility is a hallmark, and CHIP can be used for Medicaid expansions or for separate state programs. But CHIP funds were not available until federal fiscal year 1998, so CHIP expansions are not reflected in the data presented here.
Notes from this section of the report
1. Enrollment counts are based on states' annual reports to the Health Care Financing Administration (HCFA) using the HCFA Form 2082, as edited by the Urban Institute (see Liska et al. 1997).
2. By 1990, federal law required that states cover all pregnant women, infants, and children under age 6 with incomes up to 133 percent of the federal poverty level (FPL), with options for broader coverage of pregnant women and infants to 185 percent. States must cover children with incomes up to 100 percent of the FPL born after September 30, 1983; this provision phases in until all children through age 18 receive coverage in the year 2002.
3. Under Section 1902(r)(2), enacted in 1988, states may use less-restrictive methods of counting in-come or assets for pregnant women and children.
4. Under PRWORA, Medicaid eligibility related to welfare is linked to states' AFDC criteria in July 1996, not current TANF, although there are many caveats in the law. Even so, most states still automatically grant Medicaid to those getting TANF.
Note: This report is available in its entirety in the Portable Document Format (PDF).
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