Medicaid and Work Incentives for People with Disabilities

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Executive Summary

The potential loss of health benefits under Medicare and Medicaid is a deterrent to people with disabilities entering or re-entering the labor force. Although people with disabilities are generally not "sick," they often have conditions that require greater than average use of medical and long-term care services. To address this problem, Medicaid includes several mandatory and optional provisions, including ones from the Balanced Budget Act of 1997 and the Ticket to Work and Work Incentives Improvement Act, that allow people with disabilities to work and retain coverage.

This paper describes the Medicaid work incentives and how they are being implemented at the state level. It explores the major issues involving Medicaid and work incentives, including the state fiscal crises, horizontal equity across states and groups, coverage of needed services, defining disability, and the interaction between Medicaid and Social Security Disability Insurance and Medicare. In addition, the article also analyzes more technical design issues related to the Ticket to Work and Work Incentives Improvement Act work incentives, including definition of employment, age restrictions, and use of premiums.

Introduction

Medicaid is a critical source of health and long-term care financing for low-income persons with disabilities. Over the course of fiscal year 2002, Medicaid covered an estimated 7.9 million individuals with blindness or disability.¹ It is estimated that Medicaid provides health coverage for approximately two-fifths of disabled persons with incomes below the federal poverty level (FPL) and 15 percent of disabled persons with incomes between 100 and 200 percent of the FPL.² Medicaid eligibility is consequential for blind and disabled persons because they often have serious medical and other conditions that require services that they cannot easily afford. Medicaid covers a wide range of medical and long-term care services that are often critical to enabling individuals with disabilities to work or to remain in the community. High health insurance premiums and pre-existing condition exclusions are significant barriers to private insurance for this group. Even when insurance is available, it almost never covers long-term care and other support services that people with disabilities often need.

Historically, Medicaid eligibility for persons with disabilities has been tied to an inability to work, which means that individuals had to choose between receiving the medical and long-term care services that they needed and participating in the workforce. Partly as a result of their physical and mental conditions, partly due to society's low expectations of people with disabilities and partly because of cash assistance and Medicaid policy, relatively few persons with disabilities who received public benefits worked.³ For good reasons, people with disabilities were unwilling to risk losing their health coverage.

In more recent years, younger people with disabilities have demanded that they receive support to enable them to live normal lives in the community, including participating in work. As part of the changing view of people with disabilities, the Balanced Budget Act (BBA) of 1997 and the Ticket to Work and Work Incentives Improvement Act (TWWIIA) of 1999 contained provisions that enable lower-income people with disabilities to work and still retain Medicaid coverage. These provisions, often referred to as "Medicaid buy-ins" because higher income beneficiaries are required to pay premiums (thus "buying into" the program), are coverage options available to the states, but are not required.

The purpose of this paper is to analyze the role of Medicaid for working people with disabilities. The paper begins with an overview of Medicaid, especially as it relates to people with disabilities. The second section summarizes federal law regarding Medicaid work incentives for people with disabilities and describes on a national basis how states have used the flexibility available to them. In order to gain a more detailed understanding of how the Medicaid buy-in programs are working at the state level, the third section presents case studies of five states which have chosen either the BBA or TWWIIA Medicaid work incentives options. The fourth section analyzes some of the issues raised by the existing structure of work incentives. The paper concludes with policy implications for expanding work participation by people with disabilities.

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

Acknowledgments

This paper was prepared for the Ticket to Work and Work Incentives Advisory Committee as part of a contract with the Urban Institute. Lisa Ekman was the project officer. Anat Grosfeld of the Urban Institute provided valuable research assistance. The author is grateful for the insights and information provided by state officials and consumer advocates in Iowa, New Hampshire, Pennsylvania, South Carolina, and Connecticut. Useful comments on an earlier draft were provided by Sheila Zedlewski, Marie Strahan, Jerome Kleckley and Gina Livermore. The views presented here are those of the author and do not necessarily represent those of the Ticket to Work and Work Incentives Advisory Committee or the Urban Institute.

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.

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