DEPARTMENT OF HEALTH & HUMAN SERVICES 
Health Care Financing Administration  
 Center for Medicaid and State Operations 
7500 Security Boulevard 
Baltimore, MD 21244-1850 
November 24, 1997  
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 provide you information on section 4733 of the Balanced Budget Act of 1997 (BBA), which is 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.  
While Medicaid is designed primarily to cover individuals with limited income and resources, current law provides for continued 
Medicaid coverage for working disabled individuals with incomes above the normal income standards. Specifically, under  
   Section 1619(a) of the Social Security Act, individuals can continue to receive Supplemental Security Income (SSI) and 
Medicaid even if their earned income exceeds the "substantial gainful activity" (SGA) limit of $500 a month; and   
   Sections 1619(b) and 1905(q) of the Social Security Act, individuals whose earned income exceeds the maximum amount 
that will permit payment of an SSI benefit can still receive Medicaid (but not SSI) if they continue to be disabled, meet all 
other non-disability SSI requirements except for earned income, need Medicaid to continue working, and do not have 
sufficient income to replace the value of the SSI benefits and the Medicaid benefits they would lose. The amount of income 
this represents varies from State to State and year to year, but is much higher than the income standards normally applied to 
Medicaid. The range is from about $12,000 to over $32,000 a year. However, individualized calculations can be made in 
certain instances.   
While many persons with disabilities fall within the income levels for eligibility under one of the programs described above, more 
persons with disabilities may increase their earnings or consider returning to work if they are assured of continued Medicaid coverage 
beyond the 1619(b) maximums. Because they are disabled and usually have high medical expenses, and often use long-term support 
services available under Medicaid, they often do not have access to private health insurance coverage, whether through an employer or 
direct purchase from an insurer. Without access to private health insurance or Medicaid, these individuals, who are estimated to 
number very few, often cannot afford to pay for their medical care. Under this circumstance, their only alternative may be to stop 
working, or reduce their work effort, thus reducing their income to a point where they again become eligible for Medicaid.  
Section 4733 of BBA allows States to provide Medicaid to these individuals by creating a new optional categorically needy eligibility 
group. If a State chooses to cover this group, individuals can become eligible for Medicaid if:  
   they are in a family whose income is less than 250 percent of the federal poverty level for a family of the size involved; and   
   except for their earned income, they would be considered to be receiving SSI benefits.   
Section 4733 also provides that States can require individuals to pay such premiums or other cost-sharing charges, set on a sliding 
scale based on income, as the State may determine. The amount of the premium or other cost-sharing to be paid, if any, is entirely 
within each State's discretion. Section 4733 does not require a premium or cost-sharing charges.  
This provision is now in effect. We are developing a State Medicaid Manual instruction related to coverage of this group. States 
wishing to cover this group should submit a Medicaid State Plan amendment so indicating to their HCFA Regional Office. The 
amendment should indicate that the State covers this optional categorically needy group and the effective date of the amendment, and 
should include information on the premiums and cost-sharing charges the State plans to impose.  
Enclosed is an explanation of how eligibility is determined for this group.  
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  
bcc:  CMSO Senior Staff     
NOTE: The Policy Described Below Has Been Changed - See the SMD Letter Dated March 9, 1998
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. 1. The first step is a gross income test, based on the family's total combined income, including all earnings. The family's total 
combined income must be less than 250 percent of the federal poverty level for a family of the size involved. Family income 
is determined without deductions or exemptions, except for types of income generally excluded under laws other than the 
Social Security Act; e.g., Agent Orange payments, certain reparations payments, various payments to Native Americans, etc. 
If the family's income 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.  
2.   Assuming the individual has met the gross 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 1997, $484 for an individual). If unearned income equals or exceeds the SSI 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).  
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.