Changes made under the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996 have direct and indirect consequences on the Medicaid program. PRWORA not only provided states with considerable flexibility to design their welfare programs but also de-linked eligibility for Medicaid from cash assistance provided through state TANF programs. Thus, persons must be found eligible for Medicaid independent of their receipt of cash assistance. This change and existing rules governing Medicaid eligibility have important consequences for recipients who are diverted from the welfare rolls through formal diversion programs or who are diverted indirectly as a result of program changes that discourage families from applying for assistance.
In this section we explore in depth the potential impact on Medicaid coverage of the two most common formal diversion activities: (1) providing an option to persons to receive a lump sum cash payment in lieu of a TANF benefit; and (2) requiring persons to conduct job search prior to authorizing TANF benefits. We also briefly discuss how eligibility for Medicaid would be affected for families who are diverted through state efforts to link them with alternative resources and those who choose not to apply for TANF because they find the new program rules too onerous and/or expect that they may not be eligible for benefits. Before doing so, it is essential to examine fully the changes made to Medicaid under the 1996 welfare law and the consequences of these actions for determining eligibility for Medicaid.