This is an archive page. The links are no longer being updated.

The change, which would allow states greater flexibility in determining Medicaid eligibility, could potentially benefit tens of thousands of Americans. In particular, it could help the elderly, people with disabilities and families with disabled children to obtain Medicaid coverage while living at home, instead of having to live in nursing care facilities.

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proposed change addresses problems created by existing rules that limit Medicaid eligibility for certain individuals to outdated, extremely low income levels that were used in the old Aid to Families with Dependent Children (AFDC) program, prior to welfare reform.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

Under current "medically needy" rules, a state can 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. Under the proposed rule, a state could disregard portions of a person's income, such as the income necessary to pay for food, clothing or housing.

The proposed rule is of special significance for the elderly and people with disabilities. Under current rules, people in institutions can 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 proposed change would 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 proposal 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 lead fuller lives of their own choosing."

The proposed change could 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.

The proposed regulation could also allow states to provide health coverage to additional families and children who cannot be covered under existing rules. For example, states would have the flexibility to offer health insurance coverage under Medicaid to young adults ages 19 and 20 who are still in school or just beginning employment.

"This change could permit elderly and others to retain enough income to meet life's basic living expenses and still get help with their catastrophic medical bills," said Mike Hash, acting administrator of HHS' Health Care Financing Administration, which administers the Medicare and Medicaid programs. "We propose this as an important and meaningful change for 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.

The proposed regulation will be published in the Federal Register next week.

###