DEPARTMENT OF HEALTH & HUMAN SERVICES 
Health Care Financing Administration  
 Center for Medicaid and State Operations 
7500 Security Boulevard 
Baltimore, MD 21244-1850 
March 9, 1998  
Dear State Medicaid Director:  
This letter is one of a series that provides guidance on the implementation of the Balanced Budget Act.  
We are writing to alert you to a change in policy on section 4733 of the Balanced Budget Act of 1997 (BBA) from that set forth in our 
State Medicaid Director letter dated November 24, 1997 . Section 4733 created an optional categorically needy group designed to 
provide Medicaid eligibility to disabled working individuals who, because of relatively high earnings, cannot qualify for Medicaid 
under one of the other statutory provisions under which disabled working individuals may be eligible for medical assistance.  
In an enclosure to the November 24 letter, we described a two-step eligibility process consisting of a family income test of 250 percent 
of the Federal poverty level, followed by an individual eligibility determination. The family income test required that the family's 
gross income, essentially without deductions or exemptions, be compared to 250 percent of the poverty level for a family of the size 
involved.  
Since release of the November 24 letter, concerns have been raised about the use of the family's gross income for the family income 
test. The primary objection is that using the family's gross income limits the amount of income individuals could have and still qualify 
for eligibility under this group to a point where, in approximately half the States, the income standard under section 4733 is lower than 
the income standard under section 1619(b) of the Act.  
In view of these concerns, and after careful consideration of the options available, we have decided to change our policy on the family 
income test. Instead of using the family's gross income, States wishing to cover this group should measure the family's net income 
against the 250 percent family income standard. The family's net income is determined by applying all appropriate SSI income 
disregards, including the earned income disregard, to the family's total income. The result, i.e., the family's net income, is then 
compared to the 250 percent income standard.  
Use of the family's net, rather than gross, income will have the affect of greatly increasing the amount of income a disabled individual 
can have and still qualify for eligibility under this group. This in turn will enable States to provide Medicaid to a greater number of 
disabled individuals, who without such coverage might not be able to work.  
The revised enclosure explains use of the net, rather than gross, family income test. It also provides information, which was not 
included in the earlier version, on use of section 1902(r)(2) more liberal methodologies, as well as use of more restrictive policies in 
209(b) States. We also make it clear that the SSI income standard, which is used to determine the individual's eligibility following the 
family net income test, includes optional State supplementary payments. Finally, the revised enclosure discusses the use of substantial 
gainful activity (SGA) as a criterion in determining eligibility under this group.  
We apologize for any inconvenience issuance of our previous policy may have caused. Any questions about this provision or this 
letter should be directed to Roy Trudel of my staff at (410) 786-3417.  
Sincerely,  
/s/  
Sally K. Richardson  Director  Center for Medicaid and State Operations  
Enclosure  
cc:  All HCFA Regional Administrators   
All HCFA Associate Regional Administrators for Medicaid and State Operations   
Lee Partridge - American Public Welfare Association   
Joy Wilson - National Conference of State Legislatures   
Jennifer Baxendell - National Governors' Association   
HCFA Press Office  
    Enclosure 
Determining Eligibility for Individuals Under Section 4733 of BBA  
The eligibility determination for individuals in this group is essentially a sequential two-step process.  
1.  The first step is a net income test, based on the family's combined income, including all earnings. (A family can also be just 
one individual; i.e., a family of one.) The family's net combined income must be less than 250 percent of the federal poverty 
level for a family of the size involved. Family income is determined by applying all appropriate SSI disregards and 
exemptions, including the earned income disregard, to the family's total income. If the family's income, after all deductions 
and exemptions have been applied, is equal to or exceeds 250 percent of the appropriate poverty level, the individual is not 
eligible for Medicaid under this provision.   
It is up to the State to determine what constitutes a "family" in the context of this provision. As one example, a State could 
choose to consider a disabled adult living with his or her parents as a family of one for purposes of meeting the 250 percent 
family income standard.  
2.  Assuming the individual has met the net family income test, the second step is a determination of whether he or she meets the 
disability, assets, and unearned income standards to receive an SSI benefit. Income of other family members used in Step 1 is 
not included (unless the individual has an ineligible spouse whose income is subject to the SSI deeming rules). To be eligible 
under this provision, the individual must meet all SSI eligibility criteria (including categorical requirements).   
SSI methodologies are used in making this determination except that all earned income received by the individual is 
disregarded. The individual's countable unearned income (e.g., title II disability benefits) must be less than the SSI income 
standard (in 1998, $494 for an individual), or the standard for optional State supplementary payments (SSP) if the State 
makes such payments. If unearned income equals or exceeds the SSI/SSP income standard, the individual is not eligible for 
Medicaid under this provision.  
The individual's countable resources must be equal to or less than the SSI resource standard ($2,000 for an individual).  
Under section 1902(r)(2) of the Act, States may use more liberal income and resource methodologies than are used by the 
SSI program in determining eligibility for this group. Also, 209(b) States may, but are not required to, apply their more 
restrictive eligibility policies in determining eligibility for this group.  
There is no requirement that the individual must at one time have been an SSI recipient to be eligible under this provision. 
However, if the individual was not an SSI recipient, you must do a disability determination to ensure that the individual 
would meet the eligibility requirements for SSI. A disability determination for an individual who was not previously an SSI 
recipient should not consider whether the individual engaged in substantial gainful activity (SGA), since use of SGA as an 
eligibility criterion would in almost all instances result in the individual not being eligible under this group, effectively 
negating the intent of this provision.