Dynamics of Children's Movement Among the AFDC, Medicaid, and Foster Care Programs Prior to Welfare Reform: 1995-1996

03/31/2000

Policy changes may have both positive and negative effects on programs that are not the primary target of the policy. Policymakers hope that the potential negative effects are minimized and do not outweigh the positive effects on the target program as well as on other programs. Analyzing the patterns of program utilization by children before and after welfare reform can inform us about how the social safety net programs and human service utilization have been affected by ending the entitlement to cash assistance and placing new work-related requirements on their parents. This report describes pre-welfare reform behavior in order to understand the caseload dynamics around major social programs and provides a baseline for future follow-up. We trace patterns of children's service use in three programs affected by welfare reform: Temporary Assistance for Needy Families (TANF), Medicaid, and foster care. The data span 1995-1996, the years immediately prior to welfare reform, which was implemented first in 1997.

This research also sheds light on the dynamics of social program use — the understudied issue of how children and families use a range of social programs throughout their lifetimes. There is by now considerable evidence on how individuals move on and off AFDC, yet little work has been done on whether these individuals continue to use other social programs while off AFDC. By analyzing the service "careers" of children, we can begin to address such issues as the importance of Medicaid in the transition from receiving aid to greater self-sufficiency and how parenting is affected by the stressors of poverty. These questions and others addressed below are of critical interest, not simply in terms of the effects of welfare reform, but more generally because they provide a more comprehensive view of the role of welfare programs for low-income populations.

We use administrative data from three states (California, Illinois, and North Carolina) to show the patterns of service use among children in three programs affected by welfare reform: TANF/AFDC, Medicaid, and the foster care system. The administrative data capture the entire population of program users in a state. However, one should very carefully compare states to one another in their baseline characteristics; there are many factors that explain the differences in caseload changes, including different economies, welfare rules and regulations, and mixes of urban and rural populations.

We focus on program "transitions" — moving from one program to another or leaving the welfare system entirely. We first look at children in the foster care system. There is concern that with the loss of cash assistance, more families may resort to placing their children in foster care, because of their parents' inability to care for them. In our baseline comparison, we show how many children prior to welfare reform left AFDC and moved directly into the foster care system. If, after reform, we see more children than before moving from AFDC to foster care, concerns around the effect of new requirements on parents may be justified in that parents either inflict harm or are not able to protect their children from harm. The purpose of the baseline is for comparison to post-welfare reform behavior.

In a similar manner, we then look at children's movement from AFDC to Medicaid or to a system exit. We look at Medicaid because this program is considered a major component of the "safety net" of social programs designed to lift families out of poverty. Medicaid is the public health insurance for people living in poverty and for those individuals with disabilities. It is also a key support while families make the transition to work. Families are allowed to keep Medicaid for up to 12 months after they secure work (Transitional Medicaid Assistance). Following patterns in movement from AFDC to Medicaid thus tracks the newly "working poor." We maintain a focus on children here, given the concern for their well-being during their parents' move into the workforce.

Two specifics to keep in mind: we look at the group of children who entered the programs (AFDC, Medicaid, foster care) within the time frame of study (1995-1996). At each point during that time period, we check where they are — whether they are either still in the program, whether they have moved to another program, or whether they have left the system entirely.

Summary of Key Findings

Income Maintenance Programs and the Child Welfare System

In each of the states, a small proportion (under 3%) of children who entered AFDC in our study period moved to foster care (see table 1 below). However, although these are small proportions, the majority (60%) of entries to foster care in each of the states were from AFDC and therefore, the small flow from AFDC accounts for a large flow into foster care. Furthermore, most children who enter foster care from AFDC do so while receiving AFDC. In fact, the vast majority (85% in Illinois, 96% in California, and 90% in North Carolina) in our study enter foster care before the AFDC case closes. A typical transition pattern is not one in which an AFDC case closes and an entry to foster care occurs, but rather one in which a child enters foster care from an active AFDC case. Therefore, if one focuses on exiting cases, one will miss the majority of children entering foster care through the welfare system.

As one would expect from current foster care caseload dynamics, infants are nearly three times as likely to enter foster care from an AFDC spell than are 15-17-year-olds in North Carolina and California, and four times as likely in Illinois. We also find that all children receiving AFDC, but especially infants, are more likely to enter foster care relatively quickly — within the first ten months — after entering AFDC. These findings suggest that for young children, there may be a link between the stress or crisis that propels families onto the AFDC rolls and a child's entry to foster care. It also suggests that young children, being the most vulnerable developmentally, should be a primary focus of the monitoring of welfare reform.

Kinship care in Illinois and California has been used as a formal foster care placement. There is some reason to believe that the dynamics of entry to kinship care in contrast to other types of foster care are different, since relatives may be taking care of a child informally prior to the intervention by the child welfare agency and therefore, coming directly from an AFDC less often. Here we find evidence for this difference, although the difference is of greater magnitude in California than in Illinois. In California, it is 160% more likely that a child from an AFDC grant enters non-kinship foster care placements than kinship foster care and in Illinois, the likelihood is 60% greater.

In summary, the transition dynamics between AFDC and foster care across states are very similar on many parameters. The consistency across states in the numbers participating in AFDC and Medicaid prior to foster care entry suggests that poverty, or perhaps participation in welfare program, plays an important role in the entry of children into foster care. Also, it is clear that infants are at greatest risk, and that the birth of a new child is a time when the child welfare system is most likely to intervene in a family's life.

Using these results, we simulated what might happen to the foster care caseload as a result of changes post-welfare reform in the transition from income maintenance to foster care. We find that in a scenario where the rate of entry to foster care increases by 1% and the number of entries to TANF decreases by 10 percent each year, we would have increases in the foster care entries in 1999 (6%) and 2000 (5%). Alternatively, given the recent decreases in the caseload and the strong employment statistics, we might anticipate that the number of entries to foster care decreases as a result of the positive effects of parents' employment. A one percent decrease in the percentage of children entering foster care from TANF with no accompanying decrease in the number entering TANF would result in a 25 percent decrease in the total number of entries to foster care in 1999 and a 30 percent decrease in 2000. However, with a decrease in the number of entries to TANF and a decrease in the rate of foster care entry, we would see a 28 percent decrease in the foster care entries in 1999 and 34 percent decrease in 2000.

The Experience of A Social Safety Net Program for Children in the Income Maintenance Program

The three states vary greatly in the patterns of transition of children from AFDC to Medicaid. North Carolina reports many more children leaving AFDC within one year of entry (73%) than Illinois (47%) or California (42%) (see table 2). North Carolina, as a result of the shorter durations of AFDC receipt, has the highest percentage of children who move to Medicaid at one year (31%), as well as the highest percentage of children (42%) who have left the welfare system entirely at one year.

Even though the percent of children leaving AFDC at one year is similar in California and Illinois, destinations vary tremendously. California reports nearly twice as many children entering Medicaid from AFDC than in Illinois (23% vs. 12%). Illinois, on the other hand, reports twice as many children who exit the system entirely. California, as a result, has the highest percentage (55%) who receive Medicaid after their exit from AFDC. It should be noted that during 1995-1996, North Carolina and California were making special efforts to enroll children in Medicaid when their parents went to work.

Transitions from AFDC to a system exit are most likely among the oldest children in all three states. This suggests, consistent with other findings, that families with the youngest children are the most acutely needy and likely to remain on AFDC longer than families with older children. Also, it suggests that some older adolescents may be less attached to their families and are becoming independent prior to the age of majority.

With its dual emphasis on work and time limits, welfare reform is likely to result in more and earlier exits from cash assistance. As noted, families entering the workforce are offered continued health coverage through Medicaid for a transitional period after finding employment. Clients who reach stipulated time limits by first securing employment will continue to be eligible for Medicaid. Furthermore, in many states, extended Medicaid coverage under the new Children's State Health Insurance Program (CHIP) will likely mean that more families will have health insurance for their children at higher income thresholds. Thus, because more TANF families will join the ranks of the working poor, and because time limits and stiffer sanctions for noncompliance with work requirements have been mandated, we expect a higher percentage of TANF recipients to transition to receiving Medicaid assistance. A pressing policy question is what proportion of TANF exiters will completely exit the system without participating in any social safety net programs.

Conclusion

Welfare reform is likely to have many effects on children and their families. Some of the effects are intended; others are unintended consequences of policies. Offering a pre-reform snapshot of what was occurring in three states among three programs central to welfare reform may shed light on some possible scenarios as reform proceeds. More important, our findings offer a baseline against which to measure the actual changes that will accompany reform. Although we have seen similarities in the results across states, we would hypothesize that it is unlikely that we will see similar changes in program utilization across the states given the differences. Each state will differ based on its program practice and policies, economy, demographic characteristics and other factors. Each state will have to tailor its plans accordingly.

After two and one-half years of reform, the nation's AFDC caseloads have dropped precipitously cut in half in many states. With the first five-year time limit approaching in 2002, policymakers will want to plan for the loss of the income assistance for those families remaining — those with the most severe obstacles to entering the workforce. States have responded quite differently to those who have left income maintenance programs as our findings around the use of transitional Medicaid suggest. Those making the transition to the workforce will also need support services, in part to address the needs of their children. Children's well being is and will remain at the forefront for policymakers. This report offers a framework for monitoring the response of the welfare system to changes in policy and economic conditions.