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Since 1988, states have been required to provide one year of transitional Medicaid coverage for recipients of Aid to Families with Dependent Children (AFDC) who get jobs and leave the program.
Another 19 states have extended the transitional period to two years and two states —Vermont and Virginia—extend the transition period for three years. Oregon and Minnesota have gone a step further by extending publicly funded health benefits to the poor and near-poor below a certain income level regardless of whether they qualify for the public assistance program.
The theory is that the feared loss of Medicaid ties people to welfare, and lack of private insurance drives many of the working poor to quit work and seek public assistance. As welfare reform gathers momentum, the debate over the link between access to Medicaid or other insurance and successful employment has become more urgent. Here, several experts discuss how much the expansion of Medicaid and other state-subsidized health benefits has helped shrink the AFDC rolls, and the implications of this link for future welfare reform efforts.
Gestur Davidson, Health Care Economist, Minnesota Department of Human Services, St. Paul, MN
MinnesotaCare is a state-funded program launched in 1993 that subsidizes health insurance for households up to 275% of the federal poverty level. On a weighted average, the families contribute 25 cents on the dollar for premiums. The program is funded through a premium tax and currently has 93,000 enrollees.
We have all along considered it very plausible that extending health insurance benefits to the working poor would encourage people to leave AFDC and help prevent people from leaving low-paying jobs to get on welfare. Our only initial question was how many people we were keeping off welfare.
We developed an econometric model that accounted for the effects of falling unemployment rates on the AFDC rolls, as well as on MinnesotaCare and other welfare programs. Looking at the period beginning in January 1994, that model indicated that the AFDC rolls were reduced 6.5% because of Minnesota Care.
We found that, for every dollar spent on MinnesotaCare, we generated savings of 22 cents in AFDC and related cost and 47 cents when federal savings are factored in. These figures do not include other sorts of net effects (of increased employment), such as increases in state and federal payroll tax revenue or loss of
revenue from earned income tax credits.
A reduction of 6.5% in the AFDC caseload may not sound like that much. But, studies on some welfare reforms have
generally found reductions in caseload in the 2-4% range. So, my conclusion is that if you're serious about welfare reform, you need to look at extending health benefits to the working poor.
Hersh Crawford, Medicaid director, state of Oregon, Salem, OR
One of the concerns we had when we implemented Oregon's Medicaid demonstration waiver is that expansion of Medicaid eligibility to anyone at 100% of the poverty level might actually bring more people into AFDC. Studies have shown that only about 75% of the people who are eligible (for Medicaid) signed up at any one time. So, we were concerned that expanding Medicaid might bring more people into contact with the public assistance programs and might, in fact, increase the AFDC caseload.
What we found was exactly the opposite. Not only has the AFDC caseload not gone up, it's gone down. There were a number of things occurring in Oregon simultaneously, so it's difficult to establish a cause-and-effect relationship. But we did look at the new people who are eligible for Medicaid as a result of our expansion. About 60% of them are families with children. We believe that about 17% of those families could join the AFDC program if they chose to come in and apply. They have not done that. They have applied for medical
assistance instead.
You can never prove that someone would have applied for AFDC if the health care option by itself hadn't been there. But we do know that many families who are on the health plan and not on AFDC could probably qualify for AFDC if they chose to apply.
Jean Thorne, special assistant to the governor of Oregon for welfare policy and former Medicaid director, Salem, OR
We extended coverage to 100% of poverty in 1994, but trying to separate the effects of the welfare reform program (which began at the same time) from the health plan is difficult. What we can say is that we've had quite an aggressive welfare reform program.
Beginning in February of 1994, we saw dramatic decreases in our welfare caseloads from 44,000 to 32,000. I certainly would not say that's all a result of the health plan. I would say it's primarily from (other aspects of) welfare reform. But, I also believe that the health plan has contributed.
We had a study done in the late 1980s that showed one out of five people returning to welfare said they were doing it primarily to get health care coverage.
Deborah Chassman, former head of policy and research for AFDC and now an independent consultant on health and welfare programs in McLean, VA.
It's very difficult to tell what effect extending Medicaid benefits has had because states have made many changes at the same time. When people leave welfare or get jobs, it's very hard to sort out which factor helped.
I personally believe that having health care available for an extra period does help. It gives (AFDC recipients) time to either purchase health care on their own or get it through their employer. Sometimes even employers who have health care plans require people to work for a certain period before they qualify and transitional Medicaid allows the person to meet that qualification period.
In almost all cases now, health insurance requires co-payments. Initially the person is working for $5.25 an hour and may have built up bills while they were on welfare. They may not have the money for the co-payment out of their initial paychecks.
Having an initial year or two years can make a difference. First, the person is no longer at the base entry wage and can afford the co-payment. Two, they've built up some seniority. The third factor is that this may be an initial job for some people and they can't find a job that offers health benefits. But having had the experience in the first job, they can be in a much better position to search for a job that offers health benefits.
So, it all stands to reason that having transitional benefits available would help, and a lot of the academic literature indicates it would help. But I don't think states are far enough along in their evaluations to be able to state that for a fact. Most states may have done an evaluation for one year after they implemented (the extension). But, what you would need is data that shows how many people came back to welfare after that one year, compared to states that have extended Medicaid benefits past that year. Most of the welfare reform waivers are in too early a stage to be able to predict.
Jack Meyer, president, Directions for State Policy,
Washington, DC
Many of the people on welfare are not aware of the transitional benefits that are available to them. That includes child care and transportation assistance,. in addition to health care. We found this in a recent study of Indiana's program, and, also, in North Carolina.
Therefore, a substantial portion of (welfare recipients) still think that, when they take a job, they're also going to lose Medicaid immediately, and their lack of knowledge is a deterrent to work. So, one of the things we need to do is to educate people about transitional Medicaid and other transitional welfare
benefits.
There are some other important factors to consider about the effects of access to Medicaid on work. First, the effect seems to emerge almost entirely from the decision of whether to work at all and not whether to increase hours of work. There's also evidence to suggest that most of the effect of Medicaid stems from the behavioral responses of a relatively small proportion of AFDC recipients who have very serious health conditions. They very understandably fear the loss of Medicaid, which is a very comprehensive health coverage.
We haven't protected everyone coming off welfare today by any means. If you take a job and your earnings are above poverty —for instance, you make $7 or $8 an hour and you have a family of three —your kid would be vulnerable unless that job provides health insurance.
Robert Moffitt, Professor of Economics, Johns Hopkins
University, Baltimore, MD
I think the research community that works with these issues recognizes that health insurance in general is an important factor for many of the families in their decisions to be on welfare.
Historically, Medicaid was available almost exclusively to welfare recipients. Beginning in the late 1980s and early 1990s, there were several expansions of Medicaid programs to a much larger section of the poor population. Some people believe that has contributed to the decline of the AFDC rolls, which grew dramatically in the late 1980s and then around 1991 or 1992 started falling. Part of that is the economy. Part of that is increased Medicaid eligibility.
Work I have done recently indicates that among women who go off of welfare, after three years, 45% are still uninsured themselves. Children are mostly insured, because they're still eligible for Medicaid, but the women themselves are not. So there's a gap there for the adults.
That's compounded by other trends that no one quite understands. The rate of private health insurance has been dropping for the past four or five years. There's some debate about whether this is because employers don't want to cover it or whether, because these Medicaid programs are available, people don't have to take jobs (that offer health benefits). But, whatever the reason, the rate of uninsured has risen.
On the one-year expansions of Medicaid, there is very little hard evidence on exactly how much difference it makes. The research that some of us have done suggests that one year is not good enough. Even after three years, nearly half of women themselves are not covered. So the idea that women need health insurance coverage just to go off welfare, but that they'll eventually find a job that does have coverage isn't really supported by the facts.
Going from one year to two or three years certainly helps the problem, but it's also quite expensive. I think the concern now among economists is that the states that have raised the eligibility up to 185% of the poverty line may have gone too high. For a family of four, that's in excess of $20,000.
A lot of families in that income range probably could get jobs that have health benefits. And there's a danger that if you offer a government program to those relatively high-income families, that they will just rely on Medicaid and won't make as much of an attempt to find a job with health benefits in the private insurance market.
—Interviews conducted by Jack Neff
Contact Mr. Davidson at 612-282-5136; Mr. Meyer at 202-833-8877; Ms. Chassman at 703-532-8242; Mr. Moffitt at 410-516-7611; and Ms. Thorne at 503-378-3111.
Six experts offer assessments
Access to Medicaid or other insurance plays key role in keeping people off welfare, experts say
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