Dynamics of Children's Movement Among the AFDC, Medicaid, and Foster Care Programs Prior to Welfare Reform: 1995–1996. The Experience of A Social Safety Net Program for Children in the Income Maintenance Programs


Over the past 60 years, the United States has developed a series of social safety net programs to aid economically disadvantaged children that involve both cash and in-kind assistance.  Much of our understanding of the social safety net is based on an important body of work examining factors that influence exit from the cash assistance.  Much less attention has focused on how children and families use non-cash programs such as Medicaid or Food Stamps.  Understanding how children use non-cash assistance programs is important to our broader understanding of the role of social safety net programs for the poor.  The role of such programs may change as a result of welfare reform cash assistance time limits, and monitoring how children access noncash programs once they are no longer eligible for cash assistance under welfare reform will be critical to our understanding of the effects of welfare reform.

In this section, we focus in particular on whether children use Medicaid or not on exit from cash assistance.  We distinguish between children who exit cash assistance and continue to use Medicaid (Medicaid only) and those who do not use Medicaid (system exit).  We are therefore taking Medicaid as an example of a social safety net program that is intended to assist children when other sources of support — either through employment or government programs — end.  Medicaid has expanded significantly since its implementation to include individuals above the poverty level, as well as preventive services, and mental health services, in addition to the full range of government-financed health care (Kaplan, 1997).  As such, it represents a very central part of the social safety net.  Perhaps only Food Stamps and WIC can claim to play as important a role in the lives of the children of the poor and working poor.(5) 

AFDC families were eligible for non-cash programs such as Medicaid and Food Stamps.  As financial circumstances improved, families that were no longer eligible for AFDC were, because of different eligibility standards, typically still eligible for these non-cash benefits directed at both the non-working and working poor.  Families were thus eligible, under the Family Support Act of 1988, for Transitional Medicaid Assistance (TMA), for up to 12 months after leaving cash assistance, and children continued to be eligible for Medicaid until their family's income reached approximately 133 percent of the federal poverty line.(6)  When family income rose above these levels, families were no longer eligible for noncash benefits and exited this safety system.(7) 

Under welfare reform, we will continue to have Medicaid-only families and system exiters.  As welfare reform is implemented, it is clear that parents of children will either become employed and eventually leave income maintenance programs, or reach their time limits and become ineligible for income maintenance payments.  For some families who leave for employment, income will rise sufficiently to ensure that they are no longer eligible for non-cash programs such as Medicaid, and exit from TANF will be accompanied by simultaneous exit from Medicaid (system exit).  For many others reaching time limits without employment or low wage employment will mean they will remain eligible for Medicaid benefits.(8)  Furthermore, extended Medicaid coverage under the new Children's Health Insurance Program (CHIP) will likely mean that, in some states, more families will be eligible for Medicaid at higher income thresholds.

The use of Medicaid on departure from cash assistance may change under welfare reform.  It is easy to imagine how reform might lead to either increased or decreased use of Medicaid after TANF receipt.  With its dual emphasis on work and time limits, welfare reform is likely to result in more and earlier exits from cash assistance to Medicaid-only.  Increases in the transition to Medicaid-only may simply occur due to families hitting time limits and being no longer eligible for TANF.  Time limits may lead to families leaving TANF without securing such employment.  Finally, an important part of the intention of welfare reform was to increase Medicaid assistance to children still eligible.  PRWORA and state-specific policies expand and insure TMA (Kaplan, 1997).  Thus, because 1) more TANF families will join the ranks of the working poor; 2) time limits and stiffer sanctions for noncompliance with work requirements have been mandated; and, 3) more families will be eligible for Medicaid, we expect a higher percentage of TANF recipients to transition to receiving Medicaid assistance without a cash grant.

On the other hand, Medicaid only transitions may decline with reform if families earn higher incomes post reform (relative to prior) making then less likely to be Medicaid eligible.  Similarly, if families are increasingly likely not to take up the Medicaid benefits for which they are eligible, even though they are automatically eligible, welfare reform may result in decreased transitions to Medicaid-only.  Of course, even prior to welfare reform, not all Medicaid-eligible children participated in the program after leaving AFDC.(9)  For many reasons that are not well quantified, many families do not take advantage of transitional Medicaid benefits.  The uptake of Medicaid, when no longer eligible for TANF, is very much affected by the policy and practice in a particular state or local office.

Clearly, the well-being of children may suffer if they choose, for some reason, not to participate in these programs for which they are eligible.  If parents become employed and leave TANF, their new jobs may not include health insurance for their children.  Continued participation in Medicaid or participation in the new state Child Health Insurance Program (CHIP) ensures continued health insurance.  For children in the post-welfare reform era whose parents reach a time limit for cash assistance receipt or are sanctioned for some other reason, continued participation in the Medicaid program is critical to their well-being given their parents' likely reduced economic resources.

Assessing the effect of reform on participation in Medicaid only and system exit is critical to assessing the overall effect of welfare reform on children.  This change can only be understood in relation to what the rate of transitions were prior to welfare reform.  We examine the rate at which children who were on AFDC prior to welfare reform moved from AFDC to either Medicaid or to no Medicaid.  How eligible families are either formally or informally encouraged or diverted from receiving Medicaid benefits will determine much of what we find in this part of the study.  During 1995-1996, we note that states often undertook special initiatives to enroll more children into TMA.  In particular, California and North Carolina were quite active, while Illinois was not.  (In the past two years, 1998 and 1999, Illinois has made a special effort to enroll more children in TMA, and they do show improvement.)  We expect that this dynamic will change given the time limits and work incentives of PRWORA and new policies and practices regarding diversion or facilitation.  of former TANF clients.  Such data records employee participation in the federal Unemployment Insurance program and would enable us to distinguish those who are not receiving benefits because of income ineligibility.  In addition, tracking food stamp participation among families will also provide additional information on income.