Description and Assessment of State Approaches to Diversion Programs and Activities Under Welfare Reform. A. Introduction


The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (P.L. 104-193, PRWORA) ended the individual entitlement to welfare benefits under Aid to Families with Dependent Children (AFDC), established by the Social Security Act of 1935. Under the new law, states are provided with a block grant to establish a new program, Temporary Assistance for Needy Families (TANF). In contrast to the AFDC program where families could receive benefits for as long as they met the eligibility criteria, TANF benefits are time-limited. In addition, within two years of the enactment of PRWORA, states must require that TANF recipients participate in work and work-related activities to be eligible for benefits.

The new law also "de-links" Medicaid and welfare benefits. Eligibility for Medicaid is no longer automatic for TANF recipients and individuals can be eligible for Medicaid without having to be eligible for TANF. Although states are required to establish separate eligibility criteria for Medicaid and to utilize pre-TANF criteria to determine Medicaid eligibility, there are concerns that the complexities of TANF implementation, especially the shift to a time-limited, work-based assistance system, could result in the failure of many otherwise-eligible children and families to apply, or be found eligible, for Medicaid.(1) Moreover, the fact that states may deny Medicaid coverage to otherwise-eligible family heads who fail to work could potentially decrease the likelihood that Medicaid eligibility will be maintained for children of non-compliant families. Recent dramatic declines in Medicaid coverage serve to strengthen these concerns.

In general, the potential impact of the PRWORA is not well understood and it will likely be many years before the full effects of this law at the state and local levels become evident in public assistance and Medicaid recipient and expenditure data. Moreover, these data by themselves may mask the principal causes underlying enrollment trends. In the interim, however, federal and state policy makers will continue to face the immediate challenges of implementing PRWORA and responding to the short-term effects created by these changes. Thus, it is important to examine various aspects of the early implementation of the PRWORA at the state and local levels to begin to understand the full effects of this new law on low-income children and families as well as on their communities and environments.

Even before the passage of PRWORA, many states were experimenting with ways to increase participation in work by reforming their welfare programs through waivers of otherwise-applicable AFDC program rules.(2) One way in which states sought to encourage work was to divert individuals who were either job-ready or had other sources of income from becoming welfare recipients by offering them a one-time financial payment and/or job placement assistance as an alternative to enrollment in welfare. While these and other efforts to divert families from the welfare system appear to be an increasingly common component of states' welfare to work efforts, these programs are not well-understood both in terms of their actual operation or potential effects.

In an effort to better understand state efforts to divert families from welfare and the potential interactions with Medicaid eligibility, this research, funded by the Administration for Children and Families, Department of Health and Human Services, has four purposes:

  • to describe state diversion programs and activities;
  • to describe the actual implementation of these diversion programs and identify potential consequences of diversion on low-income families, particularly with respect to entry into Medicaid;
  • to examine whether and how the potential changes in Medicaid enrollment rates associated with diversion efforts might affect traditional health care safety net providers, and
  • to examine potential strategies for monitoring changes in Medicaid enrollment rates due to diversion over time.

It is important to note that the primary goal of this research is not to examine the work-related impacts of diversion programs and activities, but is instead to examine the (perhaps unanticipated) ramifications of implementing these programs/activities on Medicaid coverage for children and families.

The study will be carried out in two phases. The first phase involves the collection and analysis of descriptive data about diversion programs and/or diversion activities in all fifty states. The second phase involves a series of five case studies to facilitate the collection and analysis of qualitative data about state diversion programs and/or activities with respect to several key issues including: 1) the implementation and the actual operation of the diversion programs and/or activities, 2) the experiences of diversion participants, 3) the potential effects on Medicaid participation rates, and 4) the potential effects on health care safety net providers and community institutions.

This report presents the findings from the first phase of this research. These findings are primarily based on the results of a fifty-state inquiry of state approaches to diversion. Below, we provide a more detailed description of the conceptual framework underlying this analysis and the methods used to conduct the fifty-state inquiry. We then provide an overview of state approaches to diversion and conclude this chapter with a roadmap to the rest of the report.