Welfare Leavers and Medicaid Dynamics: Five States in 1995. Introduction


State welfare caseloads have been declining at an unprecedented rate since 1994, partly as a result of state and federal welfare reform efforts and partly because of a strong economy. From a peak of 14.2 million recipients in 1994, by 1998 monthly welfare enrollment had dropped more than 40 percent to an average of 8.3 million recipients. Medicaid enrollment for children and their parents has been shrinking as well, in spite of state efforts to expand their Medicaid eligibility policies (Ellwood and Ku 1998). The Medicaid declines are much more modest, due to the offsetting coverage available through the poverty-related groups for children and other eligibility provisions not tied to cash assistance. Recent analyses suggest that the number of children enrolled in Medicaid decreased by 2.7 percent from 1995 to 1997, whereas adult (or parental) enrollment decreased by 10.6 percent (Ku and Bruen 1999). This represents a decline in enrollment of about 1.6 million children and adults. States have substantially increased the number of children and their parents qualifying for Medicaid under the noncash eligibility groups, but this increase has not been sufficient to mitigate the declining number who qualify for Medicaid because they meet cash assistance-related rules.

These declines in Medicaid enrollment were not expected. Under the federal welfare reform legislation, called the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996, Congress tried to minimize any adverse effects of welfare reform on Medicaid, leaving in place the 12 months of extended Medicaid coverage for families leaving welfare for work and prohibiting states from imposing work requirements or time limits for Medicaid. The PRWORA legislation also provided states with considerable flexibility to make their Medicaid eligibility rules less restrictive, and PRWORA did not change the continued phase-in of the poverty-related Medicaid expansions for children. In addition, the State Child Health Insurance Program (SCHIP) legislation of 1997 provided enhanced matching funds to states to further accelerate their coverage of uninsured low-income children. Thus, States were enabled to follow several paths in expanding their Medicaid eligibility policies. There are several means by which families leaving welfare should continue to qualify for Medicaid, but to date, these provisions have not been sufficient to stem a decline in Medicaid caseloads. In view of the fact that the number of uninsured according to Current Population Survey data has risen every year since 1987, this trend is causing concern.

An earlier paper by Ellwood and Lewis (1999) used Medicaid administrative data from California and Florida for 1995 to analyze how declines in welfare enrollment were affecting Medicaid. Generally, they found that at least half of children and one-half to two-thirds of parents leaving welfare also left Medicaid, even though a greater proportion would be expected to remain eligible. Ellwood and Lewis found, too, that one-quarter to one-third of the child and adult Medicaid caseloads turned over during the year, and that 7 to 10 percent of the enrollees had short-term interruptions in their Medicaid enrollment during the year (usually referred to as “churning”). Their research suggests that the problem of continuity in Medicaid enrollment existed before the enactment of PRWORA in 1996 and may be a factor in the Medicaid enrollment decline, primarily because a sizable proportion of welfare leavers do not remain on Medicaid.

This study builds on that research by extending the analysis to additional states and examining the relationship between Medicaid expenditure levels for people leaving welfare and the likelihood of continued Medicaid enrollment. Managed care organizations are understandably concerned that the individuals who leave welfare and Medicaid may be healthier, leaving a disproportionate number of those who are sicker and more expensive on Medicaid. Obviously, this could affect the adequacy of capitation rates that are being used under Medicaid managed care programs.

We focus on the 1995 Medicaid caseloads of children and their parents in five states--Alabama, California, Florida, Michigan and New Jersey. Each of these states experienced a decline in their welfare caseloads during 1995 (Table 1). California’s welfare enrollment dropped less than 2 percent, but the decline in the other states ranged from 8 to 12 percent, according to AFDC data. Specific analyses include:

  • What happened with Medicaid enrollment in each state in 1995
  • The extent to which persons leaving AFDC during 1995 remained on Medicaid, with separate analyses of children and adults1
  • Whether Medicaid expenditure levels differed for welfare leavers who stayed on Medicaid, compared to those who left both programs
  • The level of turnover and churning within the Medicaid caseload in each state

State Medicaid Research Files (SMRF) files from the Health Care Financing Administration (HCFA(now known as CMS)) are the primary data source. For each state, these files include monthly eligibility information for all Medicaid enrollees during a calendar year, as well as information about individual expenditure levels. These five states were chosen for study because by 1995 their welfare caseloads had started to decline, and their SMRF data were readily available.