The jury is in: Welfare reform shrinks Medicaid rolls

States must rethink traditional Medicaid entry points, Kaiser Family Foundation study contends

Welfare reform policies are deterring persons from receiving Medicaid benefits for which they are eligible, concluded a study published by the Kaiser Family Foundation.

"There’s no doubt about it," said Vernon K. Smith, principal of Lansing, MI-based Health Management Associates, when addressing a gathering of state Medicaid directors in late October.

Recent federal policies have removed the most popular avenue to Medicaid eligibility for the past 30 years — cash assistance through Aid to Families with Dependent Children — and dramatically curtailed cash assistance itself. Unlinking Medicaid eligibility and cash assistance has brought about the first decline in Medicaid rolls in the decade, even in the face of Congressional action to ensure medical coverage was unaffected by welfare reform (see "Despite safeguards," State Health Watch, July 1998).

Even before welfare reform, managed care expansions may have anticipated the break between Medicaid and cash assistance: Between 1994 and 1996, the percentage of people on Medicaid who also received cash assistance fell from 69% to 64%.

But because Medicaid and cash assistance remain linked in the minds of both government officials and people who are eligible for Medicaid, enrollment cutbacks in welfare are dragging down the Medicaid population along with it, the study contended. The effect is an unprecedented decline in Medicaid enrollment from 41.7 million in 1995 to 41.3 million in 1996, when welfare reforms were first enacted.

"The national numbers are not yet available for 1997, but the indications we have would suggest a continuation of the downward trend," Mr. Smith told SHW. The break between cash assistance and Medicaid forces both policy-makers and those implementing health programs to replace welfare programs with another entry point into Medicaid, Mr. Smith said. His conclusions challenge a recent General Accounting Office report that suggested a common application and eligibility entry point would boost Medicaid enrollment (see "No major disruption," SHW, April 1998).

"We need to make enrollment in Medicaid into something that — if people are not proud of — at least they’re not ashamed of," Mr. Smith said.

Reform hits adults hardest

The largest single decline by eligibility group was among adults receiving both Medicaid and cash assistance. This group declined by 8.5% between 1995 and 1996. At the same time, adults receiving Medicaid without cash assistance increased by just 1.4% (see chart).

Although some of the decline in the Medicaid only caseload can be attributed to a gains in private-sector health coverage, researchers mainly point to outreach problems and negative attitudes toward publicly funded programs. The aversion to Medicaid is so strong that some families already in the program are willing to pay a monthly premium to switch coverage to the federal Children’s Health Insurance Program (CHIP), some state officials report. Under federal law, CHIP is not available to children who qualify for Medicaid benefits.

Human service officials, researchers, and state Medicaid directors participating in focus groups in the summer of 1998, attributed the shifting demographics in Medicaid to these changes in policies and the national economy:

• Recipients still link Medicaid to welfare and believe the new tougher welfare reform policies also apply to Medicaid.

• Aggressive jobs programs for former welfare recipients have channeled some people away from Medicaid enrollment. Jobs can increase income levels above the threshold for Medicaid eligibility, but they don’t necessarily provide employer-sponsored health insurance to replace the lost coverage.

• Administrative procedures don’t always continue Medicaid for eligible children or adults who work their way off welfare.

• People don’t know they’re eligible for Medicaid because both they and state workers lack information or are confused about eligibility rules, given all the recent policy changes.

• Unless there is a medical need, potential beneficiaries often delay applying for Medicaid.

States that have expanded Medicaid enrollment through 1115 managed care waivers offer a model for increasing enrollment, said Neva Kaye, director of the Medicaid Managed Care Resource Center at the National Academy for State Health Policy. In particular, she noted that eligibility requirements for waiver populations often are less stringent than requirements imposed on traditional Medicaid enrollees.

Name changes that distance the program from traditional Medicaid appear to be particularly effective in removing the stigma from publicly funded health programs. Texas Medicaid director Linda Wertz relayed a story about a woman who insisted she was not on Medicaid but rather in the "STAR" program. "STAR" is an acronym for State of Texas Access Reform, which is the state’s Medicaid managed care initiative.

Through the end of the century and beyond, HMA’s Mr. Smith predicts the downward trend in Medicaid enrollment will slow. In fact, official estimates from the Congressional Budget Office (CBO) anticipate an annual rate of growth of 1.7% between 1998 and 2002. The largest increases in both percentage and absolute numbers are expected to be among children and the disabled.

By 2008, according to the CBO, Medicaid enrollment will climb by about 8 million, to 49.2 million enrollees.

The Dynamics of Current Medicaid Enrollment Changes was completed by Health Management Associates and The Lewin Group for the Kaiser Commission on Medicaid and the Uninsured. A copy is available from Kaiser at 800-656-4533. Contact Mr. Smith at 517-482-9236.