Description and Assessment of State Approaches to Diversion Programs and Activities Under Welfare Reform. D. States' Experiences with Lump Sum Payment Diversion: Consequences for Medicaid


With the exception of Utah and Virginia, which have operated lump sum diversion programs for several years, the experiences of most states with implementing lump sum payment programs are quite recent. Because of its relatively long history with lump sum payment diversion programs, this section explores how Utah has addressed Medicaid eligibility issues within context of their lump sum payment diversion programs. In addition, this section explores how one state - Arizona - has reassessed its lump sum payment diversion program in consideration of its consequences on Medicaid coverage. Additionally, Arizona's approach to its lump sum payment diversion program is examined because of its proactive consideration of the impact on Medicaid eligibility.

To understand how a state with a lump sum payment diversion program has addressed the Medicaid eligibility problems that may result from providing diversion payments, project staff examined the state with the first and longest-standing lump sum payment diversion program. Utah's lump sum payment diversion program dates to 1993.

Utah: Initially Utah secured an AFDC waiver under Section 1115 of the Social Security Act to provide a one-time diversion payment to cover three months of assistance to meet basic or special needs. In return for a diversion payment, applicants agreed to have their application for AFDC denied. Without a waiver, this action would likely result in a denial of Medicaid as well.(14) Because states cannot deny Medicaid to persons who would otherwise qualify for Medicaid in the absence of a welfare reform demonstration, the state sought a waiver to assure continued Medicaid eligibility. More specifically, Utah requested that the lump sum diversion payment be considered an AFDC payment and that recipients of these payments be deemed to be AFDC recipients for three months. In other words, Utah sought to treat persons who elected to receive a diversion payment as if they were AFDC eligible for three months, and, therefore, otherwise eligible for Medicaid, because of the categorical eligibility requirements in effect at the time. If recipients are employed or find employment within this three month window, this would also make them eligible for transitional Medicaid benefits. Utah also received a Title XIX waiver to extend the availability of transitional Medicaid benefits from 12 to 24 months. Thus, Utah evidently has chosen to promote going to work with the decision to enhance the availability of transitional benefits.

Shortly before the enactment of PRWORA in the summer of 1996, Utah received approval for a five year extension of its AFDC 1115 waiver. Utah continues to operate its lump sum payment diversion program and to guarantee transitional Medicaid by treating persons who receive diversion payments as if they were qualified for Medicaid, instead of AFDC, for three months, i.e., continuing the terms of its original IV-A waiver with the adjustment for the delinking of Medicaid and cash assistance/AFDC. For example, a person who receives a diversion payment in January would remain eligible for Medicaid during the months of January,

February, and March. If a person finds employment by the third or fourth month (e.g., March or

April) then he/she would be eligible for transitional Medicaid benefits. (Given that Utah's lump

sum diversion program is targeted to employed or immediately employable persons, most recipients are likely to meet this criteria and be eligible for transitional Medicaid.) If a person has no earned income by the fourth month then his/her continuing eligibility for Medicaid would be determined under Section 1931 rather than transitional Medicaid benefits rules.

Given HCFA's subsequent interpretation of the statutory provisions regarding the continuation of AFDC waivers as described above, it is not clear whether other states can use this approach to ensure eligibility for Medicaid and transitional Medicaid assistance for persons receiving assistance under lump sum diversion programs. The use of this "deeming" strategy may not be consistent with current HCFA policy that has limited the continuation of IV-A waiver terms to the three provisions described above. States may, instead, have to consider other options, such as a Title XIX waiver of the three-month eligibility requirements, in order to continue to guarantee transitional Medicaid benefits for recipients of lump sum diversion payments. However, as also noted above, the conditions of continuing availability of these Title XIX "waivers" are not clear either. State will probably have to seek guidance on an individual basis from HCFA regarding their efforts to make Medicaid eligibility criteria complementary to participation in diversion programs.

Arizona: Arizona has decided to reconsider implementation of its lump sum payment diversion program because of the expected adverse consequences on Medicaid eligibility for persons receiving lump sum diversion payments. While Arizona passed a state law authorizing the implementation of a lump sum payment program, the state has not implemented the program because of two unresolved issues: 1) how to ensure Medicaid eligibility for recipients of lump sum diversion payments, and 2) how to ensure eligibility for transitional Medicaid benefits, which Arizona has extended from 12 to 24 months, for recipients of lump sum diversion payments.

The state envisions a person receiving a lump sum diversion payment would also qualify for Medicaid by virtue of the state choosing to disregard the entire lump sum diversion income in the month of receipt. However, if the lump sum recipients is successful in securing or retaining a job (the primary goal of the lump sum payment diversion program), his/her earned income may exceed 1931 eligibility levels and lead to the immediate loss of Medicaid thus jeopardizing eligibility for transitional Medicaid. The state does not wish in effect to penalize persons diverted through a lump sum payment program by creating the scenario whereby transitional Medicaid benefits are not accessible. According to one state official, while the state wants to move persons to work, achieving this goal through the lump sum payment diversion program could be "the worst thing to do [in terms of their eligibility for transitional] Medicaid."

To address this issue, federal and state interviewees suggested that Arizona may be considering at least three options: 1) the continuation of certain terms of the IV-A waiver provisions, 2) the submission of a Title XIX waiver to HCFA to provide transitional Medicaid benefits for persons who are diverted and have less than 3 months of receiving Medicaid, and 3) the submission of an 1115 waiver expanding the Medicaid coverage groups for the near poor. In effect, the state appears to be considering a choice between providing more Medicaid benefits for a smaller group of beneficiaries and providing some Medicaid benefits to a larger group of new beneficiaries. HCFA guidance suggests that it may be difficult for the state to achieve its desired outcomes with respect to transitional Medicaid benefits under the first two options. The third option would provide Medicaid coverage to additional persons (primarily working poor families), including persons who may elect to be diverted with lump sum diversion payment assistance, but would not necessarily assure eligibility for 24 months of transitional Medicaid benefits.