Using Medicaid to Support Working Age Adults with Serious Mental Illnesses in the Community: A Handbook. Additional Eligibility Options for People with Disabilities


SSI cash beneficiaries can secure Medicaid: (a) automatically in most states by virtue of their cash assistance status; (b) by applying for it in “SSI- criteria states;” or, (c) satisfying the rules employed in 209(b) states. There are other eligibility options available to states that permit them to extend Medicaid eligibility to people who have disabilities (based on SSA criteria) but who are not SSI cash beneficiaries. The following sections describe these options. These options often (but not exclusively) benefit SSDI beneficiaries whose SSDI entitlement disqualifies them from SSI. These individuals, of course, must meet the same disability impairment tests as SSI beneficiaries. Also, with respect to these optional eligibility groups, federal policy gives states additional latitude to depart from SSI rules concerning countable income and resources. This latitude (contained in §1902(r)(2) of the Social Security Act and described in more detail on the following page) may be used by a state to (1) extend Medicaid eligibility to low-income people with disabilities who might not qualify under SSI rules, and (2) to encourage such persons to obtain employment.

SSI and People with Disabilities Who Work
Eligibility for SSI (and SSDI) is assessed by whether a person can engage in "substantial gainful activity" (SGA). SGA is measured in part by whether a person's earnings, after deducting work expenses, are $830 or less per month. A concern is that, once a person's earnings exceed $830 per month, she or he will be dropped from SSI and, thereby, potentially lose Medicaid benefits. As a result of changes enacted in 1986, which added Section(§)1619(a) and §1619(b) to the Social Security Act, federal SSI policy provides opportunities for SSI beneficiaries to obtain work and still retain SSI benefits even if their earnings exceed the SGA level, and to retain Medicaid benefits at even higher levels of earned income.24
  • §1619(a). Individuals whose earnings exceed the SGA continue to receive SSI payments so long as their earnings do not exceed the "breakeven point." The breakeven point is the amount of income (from earnings or other sources) that would cause a person's SSI payment to go to zero. In 2004, that amount is $1,243 for an individual who does not have income from sources other than earnings. Because an individual continues to receive an SSI payment, Medicaid coverage continues as it would for any other SSI cash assistance recipient. When a person's income rises above the SGA level, the Social Security Administration automatically moves the person into §1619(a) status. An individual may continue in §1619(a) status as long as the person's income remains below the breakeven point and the person continues to meet other SSI requirements.
  • §1619(b). Under this provision, if a person's income exceeds the breakeven point, then she or he becomes ineligible for a SSI cash payment but potentially is eligible for continuing Medicaid benefits. In order to qualify for continuing Medicaid eligibility, the individual must have lost eligibility for an SSI payment due to increased earned income (this provision does not protect individuals who become ineligible for an SSI payment for other reasons) and must be found to: (a) continue to have a disabling impairment; (b) meet all non-disability eligibility criteria except for earned income (e.g., meet the SSI resource test); (c) need Medicaid services in order to work; and, (d) be unable to afford health care benefits comparable to those received if not employed. Individuals continue in §1619(b) status as long as their gross earned income is below a "threshold amount" (which takes into account the FBR and the dollar value of Medicaid benefits, by state). Individuals in §1619(b) status are treated as if they were SSI beneficiaries for purposes of Medicaid eligibility. However, in states where Medicaid eligibility is not directly linked to SSA eligibility data (SSI-criteria and §209(b) states), problems can arise in assuring that individuals retain Medicaid.25

In 2001, about 22,000 SSI beneficiaries benefited from §1619(a) and 76,000 from §1619(b).26 While these work incentives assist people with disabilities to return to work and continue to receive Medicaid benefits, they apply only to individuals who already are SSI beneficiaries.

Other work incentives available to SSI beneficiaries include: (a) Plan for Achieving Self-Support (PASS) and (b) the impairment-related work expense (IRWE). Both incentives permit SSI beneficiaries to purchase employment supports by sheltering earned income. These additional work incentives help avoid reductions in a person's SSI benefit during the period when they are entering or re-entering the workforce.

The majority of eligibility pathways for individuals with serious mental illnesses are based, at least in part, on their disability status. Table 3-1 on the following page shows these different eligibility options and the number of states that use them, as well as basic financial and other requirements. Omitted from this table are the few options for enrolling persons with serious mental illnesses based on non-disability criteria. However, all relevant options are discussed in this section.

Many working-age individuals who are eligible for Medicaid under the options described in this section are also eligible for Medicare benefits. Dual eligibility is described in the “Medicare-Medicaid Dual Eligibles” section on the following pages.

State Supplemental Payments

Many states supplement the basic SSI payment and pair these state supplementary payments (SSP) with automatic Medicaid eligibility. These states have elected to spend state-only, unmatched money to supplement the basic SSI FBR in circumstances where they have determined that rate to be insufficient to cover living expenses necessary for minimally adequate living standards. These state supplements are state-determined and vary widely by state. Some states provide across-the-board supplements to SSI-eligible persons. Several states provide supplements to individuals who live in designated types of community residences or for other reasons. In states that provide supplements, the effect of the supplement is to increase the income standard from the SSI FBR to the SSI FBR plus the amount of supplement for which a person qualifies. Some individuals have too much income to qualify for SSI cash assistance but may qualify for an SSP benefit only. States can elect to make such persons automatically eligible for Medicaid, just as they can for SSI beneficiaries. Automatic Medicaid eligibility for state supplement beneficiaries provides an additional measure of assistance in paying for needed medical services. States have broad flexibility with respect to not only the level of SSP support but also the criteria under which supplements are offered. Individuals with serious mental illnesses who receive SSP benefit from this expansion of Medicaid eligibility.

TABLE 3-1: Medicaid Eligibility Options for Working-Age Adults with Disabilities
Medicaid Eligibility Option # of states Income Limit Required Age Limits Resource/ Asset Limit Can Apply 1902(r)(2) Disability Definition
State Supplement Group (SSP) 35 No Federal limits; state can set None State can set Yes SSI
100% of Poverty 19 State defines, no more than 100% FPL None At least as much as SSI Yes SSI
Medically Needy 31 Less than 133.33% of pre-TANF AFDC level None SSI Yes SSI
BBA 97 12 250% FPL net income None SSI Yes SSI
TWWIIA Basic 16 No Federal limits; state can set 16 - 64 No Federal limits; state can set Yes SSI
TWWIIA Medical Improvement 7 No Federal limits; state can set 16 - 64 No Federal limits; state can set Yes Previously eligible for SSI

§1902(r)(2): Medicaid Exceptions to SSI Rules on Counting Income and Resources27
§1902(r)(2) of the Social Security Act permits a state to adopt more liberal rules than SSI concerning countable income and resources for optional eligibility groups. Federal rules concerning this provision were extensively revised in January 2001 and CMS has issued technical assistance to guide states in using the latitude under §1902(r)(2), especially with respect to people with disabilities. This provision cannot be invoked for most mandatory categorical eligibility groups (e.g., SSI beneficiaries).28

These rules allow states to redefine countable income or assets so that statutory eligibility limits, while still theoretically applicable, can be greatly exceeded. This flexibility comes with certain restrictions. First, the different counting methods must not disadvantage anyone, even if relatively more people would benefit than would be disadvantaged. Second, although a state may restrict its more liberal methods to eligibility groups it selects, the eligibility group(s) must be specifically defined in Medicaid law. A state cannot carve out a subgroup of its own definition (e.g., one based on medical diagnosis or place of residence). While the federal rules give states broad flexibility to expand eligibility, the adoption of more generous methods must, of course, conform to a state's budget considerations and political decisions.

The rules allow establishing higher resource limits for optional groups above the $2,000 SSI resource standard. The rules also may be used to completely exempt certain resources (e.g., retirement accounts). A state may also disregard specified sources of income. For example, a work incentive can be provided by disregarding some or all of the earned income of working-age adults with disabilities. The net effect of a state's invoking this flexibility is to broaden who may qualify for Medicaid in the categories where more liberal rules are applied. For example, in a state with the 100 percent of poverty option, more liberal disregards widen the number of individuals who meet the income standard for this option. More liberal disregards can assist more people to qualify as medically needy (especially more liberal resource standards) or reduce the amount that medically needy individuals must "spend down" in order to qualify.

Medicare-Medicaid Dual Eligibles
Working-age adults with disabilities qualify for the Medicare program if they have received SSDI benefits for a period of two years. People who receive both SSI and SSDI benefits, and individuals who receive only SSDI benefits but also qualify for Medicaid in an optional eligibility category, are called "dual eligibles" because they are eligible for both Medicare and Medicaid benefits. States pay the premiums, co-insurance and deductibles for services that dual eligibles receive through Medicare (e.g., physician services). Federal law also requires states to pay Medicare premiums, co-insurance and/or deductibles for certain low-income individuals, including SSDI beneficiaries, who do not qualify for Medicaid.

Low-income people with serious mental illnesses benefit from Medicare coverage, but Medicare covers only a limited package of mental health services (described in Chapter 4). Medicaid's benefit package is broader than Medicare's, especially with respect to long-term care services. With respect to dual eligibles, Medicaid is often said to "wrap around" Medicare benefits. Consequently, those who require a wider-range of mental health services benefit much more when they also qualify for Medicaid. In states where there is limited use of Medicaid eligibility options, low-income working-age adults with serious mental illnesses are more likely to have only the more limited Medicare benefit package to fall back on, and the availability of critical community mental health services will hinge on the availability of state funding.

100 Percent of Poverty Option

In 2004, the federal SSI FBR was approximately 73 percent of the Federal Poverty Level (FPL) for one person. States have the option to raise the income level at which any person who meets SSI disability criteria can qualify for Medicaid to as high as 100 percent of FPL ($9,310 for one person in calendar year 2004, increasing incrementally for additional family members).29 In states that employ this option, SSDI-only beneficiaries are more likely to qualify for Medicaid because many of them receive SSDI payments that are too high for SSI cash assistance but less than 100 percent of FPL. States using this option may not set limits on countable resources lower than SSI levels ($2000 for one, $3000 for a couple) but may disregard additional resources under §1902(r)(2) of the Act.

It bears repeating here that what is compared to these eligibility levels is countable (not total) income and resources. Under the 100 percent of poverty option, at the very least, states must disregard the same kinds and amounts of income and resources that SSI disregards, but they may also use more liberal income disregards than SSI. Because there is no spend down requirement associated with this option, beneficiaries do not have to spend their own funds on medical services in order to qualify (unlike the medically needy option described below). Nineteen states have selected this option.30 Most have tied their income standard to 100 percent of FPL, although some have pegged that standard to a lower amount (between 80 to 95 percent of FPL.)

Medically Needy Option31

States can cover people who have too much income to qualify in any other eligibility group under the “medically needy option.” Under this option, a person must still fit into one of the Medicaid-coverable categories -- for example, meet SSI/SSDI disability criteria. If not, they cannot qualify as medically needy no matter how low their income or how extensive their medical need. There is no specified ceiling on how much income a person can have and still potentially qualify as medically needy if their medical bills are high enough. Under the medically needy option, a state establishes income standards (also called the “medically needy income limit”) and resource standards that apply to individuals who cannot otherwise qualify for Medicaid. Once individuals incur sufficient medical expenses to reduce their income to the state’s standard (that is, they “spend down” to the medically needy income limit), they become eligible for Medicaid payment of covered services.

A Hypothetical Spend-Down Situation
If a state's medically needy income standard for an individual is $450 per month and the person has countable income of $800 per month, then the person becomes eligible for Medicaid after incurring $350 in medical expenses.

With respect to working-age adults with disabilities, the medically needy option can be beneficial for persons who have high prescribed drug or other medical expenses. It also is a Medicaid eligibility “pathway” for persons who require Medicaid-reimbursable institutional care (e.g., nursing facility services) in states that cover nursing facility care in their medically needy program. In 2000, about 3.6 million Medicaid beneficiaries were in the medically needy category, including approximately 1.3 million older persons and persons with disabilities. Medically needy is also a pathway to Medicaid eligibility for SSDI beneficiaries (including those with mental disorders) who cannot otherwise qualify for Medicaid.

Thirty-two states and the District of Columbia have medically needy programs that include individuals with disabilities. The income and resource standards that apply to these programs vary considerably among states. Some income standards are less than $200 per month while others are over $500.

However, it is important to keep in mind that states may disregard income and resources when they employ the medically needy option (as they can with other optional eligibility categories). When income is disregarded, the effect is that individuals can qualify for Medicaid as medically needy at lower levels of incurred medical expenses.

The role that the medically needy option plays in enabling working-age adults with disabilities to qualify for Medicaid hinges on the other optional coverages that a state has in place. For example, in states that have adopted the 100 percent of poverty option, medically needy eligibility comes into play only for higher income individuals who do not qualify under that option. Where a state has not adopted the 100 percent of poverty option, medically needy may be the only pathway to Medicaid eligibility for non-SSI beneficiaries.

It is important to note that under the medically needy option, a state is not required to offer its full package of Medicaid benefits. A state may limit its coverage for the medically needy to certain “mandatory” Medicaid benefits (e.g., physician services). In general, most states that operate medically needy programs offer their full Medicaid package. However, some exclude significant benefits.32

There are additional features of the medically needy option that warrant mention:

  • A state may not restrict eligibility based on medical condition, type of services needed, or place of residence.
  • Except for 209(b) states, a state must use a single eligibility level for income and resources for all the medically needy groups that it covers.33 In the case of income levels, this single level may not exceed 133 1/3 percent of the state’s pre-welfare reform AFDC payment levels. As noted above, in some states, these medically needy income levels are quite low, typically less than the SSI level. This can mean that individuals with the same disability may find themselves in very different situations depending on whether they qualify for Medicaid as an SSI beneficiary (or through another option) or under the medically needy option. The former group receives Medicaid benefits without charge while the latter group must spend down their income on medical services to qualify for Medicaid and, thereby, has fewer dollars left over to meet other basic living expenses than SSI beneficiaries.
  • Medically needy persons with incomes above the state’s threshold must spend down before becoming eligible for Medicaid benefits. This spend-down requirement can be problematic. The reason is that medically needy persons with countable incomes above the state’s Medicaid income threshold must spend down to that threshold on a periodic basis in order to remain eligible for Medicaid funding of the services they need.34 Until their spend-down limit is reached, they are responsible for their own medical expenses. There is no federal or state requirement that individuals spending down actually pay their bills. But as a practical matter, providers are unlikely to continue serving them if they fail to pay. Alternatively, states can offer people the opportunity to meet their spend-down obligation by paying it directly to the state in exchange for immediate coverage of all their medical expenses. In either case, however, persons with incomes above the state threshold may have a spend-down liability that leaves them little income available to meet living expenses.

The medically needy option permits a state to extend Medicaid eligibility to individuals whose income is higher than the amount that would permit them to qualify for other optional eligibility categories that a state may have in effect. With respect to individuals with serious mental illnesses, when this option is available, it will principally enable SSDI-only beneficiaries to qualify for Medicaid if their SSDI benefit and other income otherwise disqualifies them from Medicaid.

300 Percent of SSI Income Option

This option -- also called the special income standard -- is available for persons who meet a state’s criteria for Medicaid institutional services (nursing facilities and ICFs/MR) and HCBS waiver programs. Under this option, a state can establish a special income threshold up to 300 percent of the maximum SSI benefit ($1,737 in 2005). This income standard is tied to a person’s gross income rather than countable income. Individuals with income up to the threshold qualify for Medicaid without spending down, but, when institutionalized, such individuals may have a “share of cost” obligation that requires them to turn over some or all their income except for a personal needs allowance to offset the cost of institutional services.35

This option was originally created so that states that did not wish to cover the entire category of medically needy could at least cover higher income persons residing in a medical institution. Some states employ this option in tandem with the medically needy option for persons served in institutional settings. States may employ this financial eligibility option for individuals in 1915(c) HCBS waiver programs in order to “level the playing field” between institutional and non-institutional services. Persons receiving waiver services may also have a “share of cost” obligation that requires them to contribute to the cost of waiver services.36

Medicaid "Buy-In" Options for Workers with Disabilities37

Any benefit program that uses an income cutoff to determine eligibility may pose a powerful disincentive for beneficiaries to return to work, if the earnings from work put them above the financial eligibility threshold level for benefits. To the extent that Medicaid coverage is needed in order to live, the problem becomes an absolute barrier to employment rather than simply a “disincentive.”

As discussed above, SSI rules contain a work incentive by disregarding a significant portion of earned income, and the SSI §1619(a) and §1619(b) provisions enable SSI beneficiaries who work and earn more than the SGA standard to retain Medicaid. In addition, states may employ §1902(r)(2) to create additional work incentives by disregarding earned income in the case of people with disabilities who work but are not SSI beneficiaries.

In 1997 and 1999, Congress enacted two options for states to extend Medicaid eligibility to workers with disabilities who have significant earnings but may not qualify for Medicaid for various reasons; (including some of the limitations inherent in SSI work incentives, e.g., the low SSI limits on resources, or the contingency that a person must have previously received an SSI cash assistance payment). As shown in Table 3-2, the majority of states have elected to employ at least one of these options. Indications are that working-age adults with mental illnesses have significantly benefited when these options are made available.

In addition to employing these options (which are described in detail below) to secure Medicaid eligibility for people with disabilities who work, states have taken additional steps to address employment barriers. Some of these steps are described in “Supporting Workers with Disabilities” on the following page.

BBA of 1997 Eligibility Group

Section 4733 of the Balanced Budget Act of 1997 (BBA-97) permits states to extend Medicaid eligibility to working individuals with disabilities who, because of their earnings, cannot qualify for Medicaid under other statutory provisions. States that have employed these provisions have implemented more liberal income and resource methodologies than used in SSI. Under this option:

TABLE 3-2: State Coverage of BBA and TWWIIA Eligibility Groups
BBA Eligibility Group
Alaska Maine New Mexico Utah
California Mississippi Oregon Vermont
Iowa Nebraska South Carolina Wisconsin
TWWIIA Eligibility Groups
State Basic Group Medically Improved Income Limit
Arkansas X   250% FPL
Arizona X X 250% FPL
Connecticut X X Up to $36,990
Illinois X 20% FPL
Indiana X X 350% FPL
Kansas X X 300%
Louisiana X   250% FPL
Michigan X   No limit
Minnesota X   No limit
Missouri X X 250% FPL
New Hampshire X   450% FPL
New Jersey S   250% FPL
New York X   250% FPL
North Dakota X   225% FPL
Pennsylvania X X 250% FPL
Washington X X 220% FPL
Wyoming S   100% FPL
  • A state extends Medicaid eligibility to individuals in households with a net family income of less than 250 percent of the Federal Poverty Level, based on family size (in 2004, 250 percent of poverty for a one-person household is $23,275);
  • Except for earned income (which is completely disregarded), the individual must meet all SSI eligibility criteria, including: (a) unearned income that does not exceed the SSI FBR ($579 per month); (b) resources that do not exceed the SSI resource standard; and, (c) SSI disability criteria.
  • However, a state also may employ §1902(r)(2) to disregard both income and resources that would be counted under SSI methodologies.

In addition, under this option, a state may charge a premium and require beneficiary cost-sharing.

Supporting Workers with Disabilities38
Fear of losing Medicaid benefits is a major employment disincentive to individuals with disabilities. Federal policy now offers states several options that permit people with disabilities who work to retain their Medicaid benefits.

Several states have accompanied the "roll out" of new work-related Medicaid eligibility options with additional steps to address employment barriers. For example, features of Kansas' "Working Healthy" initiative include: (a) a TWWIIA Medicaid buy-in eligibility option so that people with disabilities who work can keep their earnings and have assets well-above standard Medicaid resource standards; (b) "benefit specialists" out-stationed around the state to help individuals understand how work affects their benefits and navigate the eligibility process; and, (c) outreach to people with disabilities and employers to increase awareness of new employment opportunities. In order to pursue these strategies, Kansas applied for and received a Medicaid Infrastructure Grant through CMS.39 Individuals with mental illnesses comprised about one-half of the first group of Working Healthy participants.40 Follow-up consumer surveys found that Working Healthy participants with mental illnesses have experienced significant improvements in their quality of life and health status as a result of their participation.41

Elsewhere, states that have adopted a Medicaid "buy-in" option have also pursued comprehensive strategies to address employment barriers. For example, some states employ benefit specialists to work with individuals. Some states (e.g., Utah and California) have modified their coverage of Medicaid personal assistance services in order to support individuals with disabilities at locations outside their homes, including the workplace; (the use of personal assistance to support employment is described in Chapter 4). In states that offer peer support, peer support specialists can also play an important role in supporting individuals with serious mental illnesses to return to work. The adoption of Medicaid buy-in options has also been linked to cross-agency employment initiatives to promote employment for people with disabilities. These initiatives frequently include vocational rehabilitation, program agencies (e.g., state mental health authorities), and state employment agencies.

TWWIIA Options

The Ticket to Work and Work Incentives Improvement Act of 199942 created two new optional eligibility groups: (a) the Basic Coverage Group and (b) the Medical Improvement Group. The key differences between the TWWIIA eligibility groups and the BBA-97 eligibility group are as follows43:

  • Basic Eligibility Group. There is no 250 percent of poverty income limit as under the BBA-97. Instead, a state may set its own income limit. This group is limited to persons between the ages of 16 and 64. In addition, there are no required income and resource standards. Like the BBA-97 eligibility group, individuals must meet SSI disability criteria.
  • Medically Improved Group. The difference between this group and the Basic Eligibility Group (and the BBA-97 group) is that it may include individuals whose disability has improved to the extent that they no longer meet SSI disability criteria. This determination is made by the Social Security Administration as a result of a regularly scheduled continuing disability review.44 These individuals must have met SSI disability criteria before the review was conducted.

Like the BBA-97 group, states may require beneficiaries to pay premiums and share the cost of services. In addition, with respect to the TWWIIA groups, states also may employ §1902(r)(2) in order to use more liberal income and resource methodologies for these groups.

In many respects, the TWWIIA option provides states more flexibility in crafting work incentives than the predecessor BBA-97 option. While there are differences between the BBA-97 and TWWIIA eligibility options, both give states the latitude to extend Medicaid eligibility to people with disabilities who are successfully employed. These expansions potentially can benefit both SSI and SSDI beneficiaries who return to work. It is important to point out that the SSDI program has weaker basic work incentive provisions than the SSI Program.45 These options (or the use of income disregards in other optional coverage groups) can provide important assistance to SSDI beneficiaries who work but also need access to Medicaid benefits. One important result of the BBA-97 and TWIAA work provisions is that individuals who formerly could only qualify for Medicaid via the medically needy option can now receive benefits under these options. By avoiding the spend down requirements associated with the medically needy option, these individuals can retain more of their work income and, thus, be more independent.

For SSI recipients who work, eligibility for Medicaid benefits hinges on the extent to which a state has selected other Medicaid options and how those options have been structured.

TANF/AFDC Group and Pregnant Women

As noted previously, the 1996 “welfare reform” legislation severed the direct and long-standing tie between the receipt of cash assistance and Medicaid eligibility for low-income dependent children and their parent(s) or caretaker relatives. The Aid to Families with Dependent Children (AFDC) program was replaced by the Temporary Aid to Needy Families (TANF) program. However, states were required to continue their AFDC-based Medicaid eligibility criteria for this group.

States must also extend Medicaid eligibility to low-income pregnant women in households with incomes up to 133 percent of poverty, and include pregnant women if they operate a medically needy program. Under current Medicaid eligibility provisions for parent(s) and caretaker relatives with children, approximately nine million adults are Medicaid beneficiaries for reasons not directly linked to disability.46

While these eligibility categories are not tied to disability, studies have revealed that a significant number of parents in very low income families and pregnant women (who are or would likely be eligible for Medicaid under non-disability related eligibility groups) have serious mental illnesses. Indeed, especially with respect to parents in very low income families, significant numbers of individuals have been found to qualify for SSI because they have disabilities, including those caused by mental impairments.47 There are other adult members in such families whose mental impairments are significant, but these individuals do not qualify for SSI. In addition, it is estimated that between three and four percent of pregnant women have serious mental illnesses.

Medicaid mental health services are often provided to SSI beneficiaries or persons who qualify for Medicaid through other options but still meet SSI disability criteria. However, adults in Medicaid-eligible low-income families can also make up a significant portion of the pool of individuals who may benefit from Medicaid mental health services.

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