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The change, which will allow states greater flexibility in determining Medicaid eligibility, could potentially benefit tens of thousands of Americans. It enables states to offer health coverage to low income youth who are still in school or are making the transition to jobs, as well as to more parents leaving welfare for work. It may also help the elderly, people with disabilities and families with disabled children to obtain health coverage at home, instead of having to live in nursing care facilities.

The change addresses problems created by existing rules that limit Medicaid eligibility for certain individuals to extremely low income levels that were related to the levels used in the old Aid to Families with Dependent Children (AFDC) program, prior to welfare reform. The rule is aimed at assisting those individuals whose income is slightly above traditional Medicaid income limits, but who are strapped with significant medical bills.

Prior to this new regulation, under "medically needy" rules, a state could offer Medicaid coverage to such persons once they have spent so much of their income on medical bills that what is left over meets the states' medically needy income standard. In more than 40 percent of the states, however, that standard is significantly below the poverty level and Americans with high medical bills were often forced to keep their incomes low to qualify. Under the new rule, a state could disregard increased portions of a person's income, such as the income necessary to pay for food, clothing or housing before determining whether the individual is eligible for Medicaid.

The new rule is of special significance for the elderly and people with disabilities. Under the old rules, people in institutions could qualify for Medicaid coverage at much higher income levels than if they lived in the community. This "institutional bias" acts as a barrier to living in the community for many persons with disabilities. The change will allow states the flexibility to change their own rules so that elderly or people with a disability would not have to lose their health coverage if they move into a community setting.

"This new policy has important potential to open doors to community living for thousands of Americans who are able to live at home and do not want to be confined in nursing homes," said HHS Secretary Donna E. Shalala. "It can enable people to obtain the services they need to live in their own home despite a chronic illness or disability, and can also help single parents making the transition from welfare to work."

The policy change can also be used by states to help low-income people who have a disability to participate in the workforce, by allowing states to disregard certain earnings or other sources of income and still retain vital health coverage under Medicaid. For example, a state might disregard income from a savings account used by a worker to save funds for the purchase of a home, automobile, or similar items that promote independence.

"This change could permit elderly people and people with disabilities to retain enough income to meet life's basic living expenses and still get help with their catastrophic medical bills," said Tim Westmoreland, director of the Center for Medicaid and State Operations in HHS' Health Care Financing Administration (HCFA), which administers the Medicaid program.

"All comments we received on the notice of proposed rule-making were very favorable," said Westmoreland. "Such overwhelming support is just one indication of how important this change is to the states that already provide critical health coverage under Medicaid to millions of Americans."

New federal spending under the proposed regulation is estimated at $960 million over five years. States would also spend a similar additional amount over that period.

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