Medicaid: Transitional Coverage Can Help Families Move From Welfare to Work
Published: 2002-04-23T00:00:00

Fast Facts:

Highlights:
section_title: What GAO Found
paragraphs: Welfare reform significantly changed federal policy for low-income families with children and established a five-year lifetime limit on cash assistance. Welfare reform also extended transitional Medicaid assistance through 2001. States have implemented various initiatives to help families move from cash assistance to the workforce, including some enhancements to transitional Medicaid. These initiatives likely helped to cut cash assistance caseloads by more than half from 1996 through mid-2001. Low-wage or part-time jobs--which are common for newly working individuals--often do not come with affordable health insurance, thus making transitional Medicaid coverage an important option. The implementation of transitional Medicaid assistance varied across the 21 states that GAO reviewed. State practices enhanced beneficiaries' ability to retain Medicaid coverage. However, many families did not receive their full transitional Medicaid assistance benefits because they failed to report their income three times during the 12-month period of coverage. Amending the Medicaid statute to provide states with greater flexibility to ease income-reporting requirements, as has been done for other aspects of the Medicaid program, could facilitate uninterrupted health insurance coverage for families moving from cash assistance to the workforce.

section_title: Letter
paragraphs: I am pleased to be here today as you consider the role of Medicaid in  helping families’ transition from welfare to the workforce.  Since 1988, the  Medicaid program has offered transitional Medicaid assistance, which  provides certain families who are losing Medicaid as a result of  employment or increased income up to 1 year of additional Medicaid health  insurance coverage.  Transitional Medicaid assistance was originally  enacted for a 10-year period, and has twice been extended to help provide  continued health insurance coverage to families moving into employment.
The enactment of federal welfare reform in August 1996 significantly  changed federal welfare policy for low-income families with children in  several ways, including establishing a 5-year lifetime limit on cash  assistance.   The welfare reform law also extended transitional Medicaid  assistance through 2001, thus continuing an important link to health  insurance coverage for individuals as their economic circumstances  changed.  States have implemented a variety of initiatives intended to help  families move from cash assistance to the workforce, including some  enhancements to transitional Medicaid.  These initiatives have likely  contributed to a drop in cash assistance caseloads of more than 50 percent  from 1996 through mid-2001.
Because the transitional Medicaid provision is due to expire in September  2002 and you are considering its extension, you asked us to provide  information on the role this program plays in supporting transitions from  welfare to work.  Accordingly, my remarks today will focus on how  transitional Medicaid assistance provides low-income working families  an option to maintain health insurance coverage and  states have used transitional Medicaid to provide health insurance  coverage to families.
My comments are based largely on our previously issued reports and  testimony on Medicaid and welfare reform.
In summary, transitional Medicaid assistance is a key protection offered to  families at a critical juncture in their efforts to move from welfare to work.   Employment in low-wage or part-time positions—which is common for  these newly working individuals—frequently does not provide adequate  access to affordable health insurance, whether through employer- sponsored or individually purchased health insurance, thus making  transitional Medicaid coverage an important option.  Our earlier work  showed that, for the 21 states we reviewed, the implementation of  transitional Medicaid assistance varied across the states and that certain  state practices had enhanced beneficiaries’ ability to retain Medicaid  coverage.  For example, some states reported increasing training for state  eligibility determination workers to better inform beneficiaries of this  entitlement and how to access it.  We also found, however, that many  families did not receive their full transitional Medicaid assistance benefits  because they failed to report their income three times, as required,  throughout the 12-month period of coverage.  Amending the Medicaid  statute to provide states with additional flexibility to ease income-reporting  requirements for the coverage period of transitional Medicaid assistance,  as has been done for other aspects of the Medicaid program, could further  facilitate uninterrupted health insurance coverage for families moving from  cash assistance to the workforce.
subsections: section_title: Background
paragraphs: Transitional Medicaid assistance offers families moving from cash  assistance to employment the opportunity to maintain health insurance  coverage under Medicaid, a joint federal-state health insurance program.   Medicaid spent about $216 billion in fiscal year 2001 on coverage for  certain low-income individuals.  Transitional Medicaid assistance provides  certain families losing Medicaid as a result of employment or increased  income with up to 1 year of Medicaid coverage.  Families moving from  cash assistance to work are entitled to an initial 6 months of Medicaid  coverage without regard to the amount of their earned income, and 6  additional months of coverage if family earnings, minus child care costs, do  not exceed 185 percent of the federal poverty level.  To qualify for either 6- month period, a family must have received Medicaid in 3 of the 6 months  immediately before becoming ineligible as a result of increased income.
When federal welfare reform was enacted in 1996, states implemented a  variety of initiatives intended to help families move from welfare to the  workforce.  Welfare reform provided states additional flexibility in helping  cash assistance recipients to both find work and achieve family  independence.  As a result, states have expanded and intensified their  provision of work support services such as those for job search, job  placement, and job readiness.   Many individuals in this population had  low skills and faced a number of barriers to maintaining work and  independence.  For example, our work has shown that factors such as  limited English proficiency, poor health, and the presence of a disability  were some of the factors that affected the extent to which former cash  assistance recipients were able to find and keep employment.
Maintaining health insurance coverage is important to persons entering the  workforce because there are important adverse health and financial  consequences to living without health insurance.  The availability of health  insurance enhances access to preventive, diagnostic, and treatment  services as well as provides financial security against potential  catastrophic costs associated with medical care.  Research has  demonstrated that uninsured individuals are less likely than individuals  with insurance to have a usual source of care, are more likely to have  difficulty in accessing health care, and generally have lower utilization  rates for all major health care services.  Uninsured individuals are more  likely than those insured to forgo services such as periodic check-ups and  preventive services, well-child visits, prescription drugs, dental care, and  eyeglasses. As a result, individuals not covered by health insurance may  need acute, costly medical attention for conditions that might have been  preventable or minimized with early detection and treatment.
section_title: Transitional Medicaid Assistance Can Fill Gaps in Accessibility of Private Health Insurance for Low- Income Workers
paragraphs: Limitations in private sources of coverage underscore the importance of  transitional Medicaid assistance as an option for those moving from cash  assistance to employment.  Private health insurance is not accessible to or  affordable for everyone. Although most working Americans and their  families obtain health insurance through employers, many workers do not  have coverage because their employers do not offer it or the coverage  offered is limited or unaffordable.  Lack of insurance is more common  among certain types of workers, employers, and industries and may  disproportionately represent individuals transitioning from cash assistance  to work.  For example, individuals who work part-time or are employed in  low-wage jobs are less likely to have access to affordable employer- sponsored coverage.  Furthermore, those who do not have employer- sponsored coverage may find alternative sources of coverage, such as the  individual insurance market, expensive or altogether unavailable.  Without  continued access to Medicaid, some of these individuals, who are often in  low-wage jobs, will have limited or no access to alternative coverage and  could end up uninsured.
subsections: section_title: Private Sources of Health Insurance Are Not Universally Available and May Have Coverage Limitations
paragraphs: Employment-based coverage is the primary means for nonelderly  Americans to obtain health insurance, and over two-thirds of nonelderly  adults obtained their coverage through an employer in 2000.  However, a  significant number of workers do not have health insurance because either  their employers do not offer it or they choose not to purchase it.  In 2000,  30 million nonelderly adults were uninsured, even though 75 percent  worked for some period during the year.  (See fig. 1.)
Lack of insurance coverage is more common among certain types of  workers, employers, and industries.  Part-time employees and employees  of small firms (fewer than 10 employees) are more likely to be uninsured  than employees who work full-time or for a large company.  Individuals  working in certain industries are less likely to be offered health insurance.   For example, in 1999, more than 30 percent of workers in the construction,  agriculture, and natural resources (for example, mining, forestry, and  fisheries) industries were uninsured, as were about 25 percent of workers  in wholesale or retail trade.  In contrast, 10 percent or less of workers in  the finance, insurance, real estate, and public employment sectors were  uninsured.  These patterns may disproportionately affect individuals  leaving cash assistance because they often work in low-wage jobs, part- time, or in industries such as retail that often do not provide health  coverage.
Young adults, aged 18 to 24, are more likely than any other age group to be  uninsured, largely because certain characteristics of their transition to the  workforce—working part-time or for low wages, changing jobs frequently,  and working for small employers—make them less likely to be eligible for  employer-based coverage.  Among those aged 18 to 24, 27 percent were  uninsured, and among those aged 25 to 34, 21 percent were uninsured in  2000.  (See fig. 2.)
Even when employer-sponsored coverage is available, its costs may be  prohibitive or its benefits very limited.  Employer-sponsored health plans  may not subsidize coverage for dependents, may restrict or exclude certain  benefits, or may subject participants to out-of-pocket costs either through  premium contributions or cost-sharing provisions that low-wage workers  may find unaffordable.   For example, a 2001 survey by Mercer/Foster  Higgins found that, on average, large employers (500 or more employees)  require employees enrolled in preferred provider organizations (PPO) to  contribute $56 each month for employee-only coverage, or $191 each  month for family coverage.  For lower-wage workers, such as individuals  leaving cash assistance and entering the workforce, even coverage that is  affordable for a worker may be too expensive for covering the rest of the  family members.
Those without access to employer-sponsored coverage may look to the  individual insurance market to obtain coverage, and in 2000, 5 percent of  nonelderly Americans (or 12.6 million individuals) relied on individual  health insurance as their only source of coverage.  However, restrictions on  who may qualify for coverage and the premium prices charged can have  direct implications for consumers.  For example, depending on their health  status and demographic characteristics such as age, gender, and  geographic location, individuals in the majority of states may be denied  coverage in the private insurance market or have only limited benefit  coverage available to them.  In addition, while all members of an employer- sponsored group health plan typically pay the same premium for  employment-based insurance regardless of age or health status, in most  states individual insurance premiums are higher for older or sicker  individuals than for younger or healthier individuals, potentially making  this option unaffordable.  For example, a recent study examined  individual insurers’ treatment of applicants with certain preexisting health  conditions, such as hay fever.  The study of insurers in eight localities found  that for applicants with hay fever, 8 percent would decline coverage; 87  percent would offer coverage with a premium increase, benefit limit, or  both; and 5 percent would offer full coverage at the standard rate.  Cost  differences are often exacerbated by the fact that individuals must absorb  the entire cost of their health coverage, whereas employers usually pay for  a substantial portion of their employees' coverage.
section_title: Transitional Medicaid Assistance Can Provide Continued Insurance Coverage
paragraphs: Because of limitations in the availability of private insurance—especially  for low-paid, part-time workers and those in certain industry sectors that  often characterize jobs available to individuals moving from cash  assistance to work—transitional Medicaid assistance is an important  option for health insurance coverage.  Individuals with lower incomes have  a much higher than average probability of being uninsured. (See fig. 3.)   Typically, former welfare recipients entering the workforce work part-time  or in low-wage jobs that are less likely to provide health coverage or only  provide coverage at a prohibitive cost.  For example, we noted in our 1999  report on states’ experiences in implementing transitional Medicaid  assistance that one state found that out of nearly l,600 former welfare  recipients surveyed, 43 percent of the heads of households worked fewer  than 32 hours per week and did not have health insurance, and 32 percent  held low-wage jobs, such as in retail stores, hotels, restaurants, and health  care establishments.
In addition, although some employers of former cash assistance recipients  may not offer health insurance, numerous studies have shown that a  significant number of these individuals have access to employer coverage  but choose not to accept it.  For example, a recent study showed that  although about 50 percent of individuals transitioning from cash assistance  to employment had access to employer coverage, only about one-third  opted to participate in the employer-sponsored plan.  The relatively low  “take-up” rate is due largely to the high costs of many employer health  plans.  Transitioning workers, who commonly earn between $7 and $8 an  hour, may simply be unable to afford their share of the premium, since their  annual earnings range from 73 percent to 111 percent of the federal poverty  level.  (See table 1.)
section_title: States’ Efforts Encouraged Use of Transitional Medicaid, but Not All Eligible Families Received Assistance
paragraphs: While the Medicaid statute provides families moving from welfare to work  with up to 12 months of transitional Medicaid coverage, we have reported  that certain states had obtained waivers from HCFA to extend the length of  coverage provided, and that the share of eligible families that actually  received this entitlement varied significantly by state.  States offered from 1  to 3 years of transitional Medicaid assistance in 1999.  In the several states  that were able to provide data on participation in transitional Medicaid  assistance, we found that participation rates among newly working  Medicaid beneficiaries ranged from 4 to 94 percent.  Several states had  made efforts to facilitate beneficiaries' participation in transitional  Medicaid.  For example, nine states reported developing outreach and  education materials to inform families and eligibility determination  workers about transitional Medicaid assistance.  While such approaches  helped make transitional Medicaid more available, beneficiaries’ failure to  report income as required often resulted in their losing eligibility after the  first 6 months.
subsections: section_title: Length of Coverage and Program Participation Was Mixed Among States
paragraphs: States’ implementation of transitional Medicaid coverage varied, resulting  in differing lengths of time for which coverage was provided and differing  rates of family participation.  As of 1999, the most current national data  reported, 10 states—Arizona, Connecticut, Delaware, Nebraska, New  Jersey, Rhode Island, South Carolina, Tennessee, Utah, and Vermont— provided over 1 year of coverage, while the remaining states provided 1  year of coverage.  (See fig. 4.)  In the several states that were able to  provide such data, transitional Medicaid participation rates ranged from  about 4 percent of the families moving from cash assistance in one state to  94 percent of such cases in another.  However, low participation rates in  transitional Medicaid assistance did not always indicate that families had  lost Medicaid coverage altogether.  For example, officials in the state with a  4 percent participation rate said that most families losing cash assistance  were still enrolled in Medicaid through other eligibility categories for low- income families.
section_title: States’ Initiatives Facilitated Beneficiary Use of Transitional Medicaid Assistance, but Not All Families Maintained Coverage
paragraphs: We found that several states had initiatives in place to facilitate  beneficiaries’ access to transitional Medicaid assistance.  The following are  examples of such initiatives.
Nine states reported developing specific materials regarding transitional  Medicaid assistance in easy-to-understand language for eligibility  determination workers and beneficiaries.
One state revised its computer systems so that eligible families leaving  cash assistance due to employment were automatically transferred to  transitional Medicaid assistance coverage.  In addition, this state’s  eligibility workers randomly contacted families who were leaving cash  assistance to determine their health insurance status and to ensure that  they obtained the additional months of Medicaid coverage for which  they were eligible.  As a result of this state’s efforts, about 70 percent of  the families leaving cash assistance or Medicaid received transitional  Medicaid coverage.
Officials in three other states encouraged increased participation in  transitional Medicaid assistance by contacting families with closed cash  assistance cases to determine whether these families had obtained the  additional months of Medicaid coverage if so entitled.  One of these  states, which also provided 24 months of transitional Medicaid  assistance, reported that 77 percent of eligible families were receiving  this benefit.
However, even with such successful enrollment efforts, many families did  not receive the full transitional Medicaid assistance benefits because they  failed to periodically report their income as required.  The Medicaid statute  requires that beneficiaries report their income three times during the 12  months of transitional Medicaid assistance: once in the first 6-month period  and twice in the second 6-month period.  Failure to report income status in  either of these 6-month periods results in termination of transitional  Medicaid benefits.
In 1999, we reported that families’ failure to periodically submit required  income reports often resulted in their not receiving transitional Medicaid  coverage for the full period of eligibility.  For example, officials in three  states we reviewed told us that families typically received only 6 months of  transitional Medicaid, generally because they failed to submit the required  income reports—and not because of a change in income that made them  ineligible for transitional Medicaid.  In contrast, the state that had a 94  percent participation rate for transitional Medicaid offered coverage for 24  months and had received HCFA approval to waive the periodic income-  reporting requirements.  Overall, we found that states that waived income- reporting requirements reported higher participation rates than states that  did not.
In implementing public programs such as Medicaid, difficult trade-offs  often exist between ease of enrollment for eligible individuals and program  integrity efforts to ensure that benefits are provided only to those who are  eligible.  The experience of some states in easing statutory periodic  income-reporting requirements proved successful in increasing  participation for eligible beneficiaries.  In view of concerns that beneficiary  reporting requirements were limiting the use of the transitional Medicaid  benefit, HCFA proposed legislation to eliminate beneficiary reporting  requirements for the full period of eligibility (up to 1 year).  To date, no  action has been taken on this proposal.  In our earlier report we  recommended that the Congress may wish to consider allowing states to  lessen or eliminate periodic income-reporting requirements for families  receiving transitional Medicaid assistance, provided that states offer  adequate assurances that the benefits are extended to those who are  eligible.  Precedent for a full year of coverage in Medicaid has been  provided in other aspects of the Medicaid program.  For example, the  Balanced Budget Act of 1997 allowed states to guarantee a longer period of  Medicaid coverage for children, such as 12 months, regardless of changes  in a family’s financial status. As of July 2000, 14 states had implemented  this option. A similar approach could facilitate uninterrupted health  insurance coverage for families that are moving from cash assistance to the  workforce.
section_title: Concluding Observations
paragraphs: Transitional Medicaid assistance can play an important role in helping  individuals move successfully from cash assistance to employment, thus  further advancing the goals of welfare reform.  Without access to Medicaid  coverage, these individuals, who are often in low-wage jobs, might have  limited or no alternative health coverage and join the ranks of the  uninsured.  While our earlier work demonstrated that states varied in the  extent to which families were participating in transitional Medicaid  assistance, states that worked to minimize obstacles—particularly by  reducing or eliminating income-reporting requirements—had higher  participation rates.  Removing periodic reporting requirements would help  further increase the use of transitional Medicaid assistance, provided that  sufficient safeguards remained in place to ensure that only qualified  individuals receive the benefits.
Mr. Chairman, this concludes my prepared statement.  I will be happy to  answer any questions that you or Members of the Subcommittee may have.
section_title: Contacts And Acknowledgements
paragraphs: For more information regarding this testimony, please contact William J.  Scanlon at (202) 512-7114 or Carolyn L. Yocom at (202) 512-4931.  Susan  Anthony, Karen Doran, JoAnn Martinez-Shriver, and Behn Miller made key  contributions to this statement.