States Could Gain More Flexibility to Manage Medicaid Programs — What Can They Learn from the 1990s AFDC Flexibility Experience?

The new Administration has signaled a willingness to give states more flexibility to address health and prevention in new and innovative ways under Section 1115 of the Social Security Act. This provision allows the Department of Health and Human Services to approve experimental and innovative projects that promote the goals of Medicaid. This comes at a pivotal time when many states are developing new ways to improve health care, reduce costs, and address health-related social needs such as housing.

What can states learn from the AFDC flexibility experience?

  • The new Administration has offered states more flexibility through Section 1115 waivers to redesign their Medicaid programs.
  • When states were given similar latitude to redesign AFDC programs in the 1990s, some states imposed work requirements that eventually found their way into federal law (TANF).
  • Medicaid differs markedly from cash assistance welfare programs, and the idea of imposing similar sanctions on a health care entitlement is controversial.
  • With more leverage over Medicaid, will states develop innovative programs to improve health care, reduce costs, and address health-related social needs?

Using waivers to grant states more flexibility to manage programs is not new; nor is it limited to Medicaid. In the 1990s, states used Section 1115 waivers to redesign their Aid to Families with Dependent Children (AFDC) programs, which provided cash assistance to low-income families and was the precursor to today’s Temporary Aid to Needy Families (TANF).

Using these waivers, some states profoundly changed their AFDC programs by imposing stricter work requirements, which were later incorporated into TANF nationwide. The pace of waiver activity slowed dramatically after TANF was created in 1996. In 2012, the Obama administration encouraged states to develop innovative Section 1115 projects to help TANF recipients become and stay employed. Recently, the new Administration rescinded states’ flexibility to modify TANF work requirements, while simultaneously promoting more state flexibility over their Medicaid programs.

The debate over work requirements is now spilling over into Medicaid at a time when many state health policymakers are using Section 1115 waivers to craft innovative programs that support people’s need for health-related necessities such as safe housing and nutritious food. A look at states’ past experiences with AFDC/TANF waivers may prove instructive as policymakers consider what Medicaid innovations and new policies might emerge from the flexibility promised by the Administration.

The History of Section 1115 Demonstration Waivers in AFDC
Section 1115 demonstration projects, designed to give states flexibility to administer programs that address health care and social welfare needs, were added to the Social Security Act (SSA) in 1962, before Medicaid was created in 1965. Section 1115 allowed the Health and Human Services (HHS) secretary to waive some provisions of public assistance programs to allow for the design of pilot projects that would promote the goals of programs such as AFDC. Created in 1935 within the Social Security Act, AFDC—then known as Aid to Dependent Children—was designed to assist children in families with an absent parent. At the time, most states had laws establishing support for families headed by a single mother, so the federal law provided welcome financial support for the state programs.

Starting in 1962, states were able to waive some federal AFDC program requirements and during the 1980s and 1990s, both Democratic and Republican administrations encouraged states to use Section 1115 to test innovations. President Clinton’s administration approved more than 40 states’ waivers, many of which contained statewide program changes.

States often used the waivers to impose and tighten work requirements for AFDC participants, which paved the way for a 1988 federal law required AFDC beneficiaries to participate in the Job Opportunities and Basic Skills (JOBS) training program unless they were ill, incapacitated, elderly, or needed to take care of a family member. Exemptions were also given to pregnant women in their second or third trimester, people already working at least 30 hours per week, parents caring for children under three years of age (or children between ages one and three, according to individual state’s rules), and children who were younger than 16 or full-time students. The waivers resulted in different states imposing different work requirements, with some states requiring parents of children as young as six months, three months, or twelve weeks of age to participate in the JOBS program.

Some states used the waiver process to limit the length of time that families could receive AFDC. A number of states limited families to two years. Some states used waivers to penalize AFDC recipients who had additional children by reducing their benefits and/or their JOBS exemption. Many states used waivers to cap families’ benefits so their benefits did not increase when a child was born. Many of these common waiver elements found their way into federal regulations governing TANF block grants to states, which replaced AFDC when it was repealed in 1996. For example, TANF generally limits families to five years of benefits, whereas the prior AFDC program placed no federal time limits on benefits. TANF also does not generally exempt single parents taking care of young children beyond the child’s infancy, unlike AFDC, which allowed exemptions for parents of children up to three years old. Note that TANF, like AFDC, does not penalize parents if there is no child care available.

How Do TANF and Medicaid Compare?
While TANF and Medicaid both fall under the Social Security Act (Titles IV and XIX, respectively), the programs have important differences. The 1996 law changed cash assistance, considered a welfare program, from a guaranteed entitlement (AFDC) to a non-guaranteed block grant (TANF). However, it did not make similar changes to the structure or financing of Medicaid; in fact, it explicitly preserved Medicaid as a guaranteed health care benefit. The law also untethered Medicaid from federal eligibility for cash assistance. Medicaid is not, under federal law, a welfare program.

Waivers After TANF
After 1996, states with AFDC waivers were allowed to delay implementation of some TANF provisions until their waivers expired. Some states chose to do so in order to continue collecting data for program evaluation, or to continue program elements not permitted by TANF. Other states chose to implement TANF immediately and discontinue their AFDC waiver programs.

While Section 1115 still applied to TANF, waiver activity related to the program essentially halted with the law’s 1996 passage. In an attempt to reinvigorate state innovation in TANF, the Obama administration published guidance to states in July 2012 indicating its willingness to relax some TANF program requirements—particularly work requirements—under Section 1115 authority. It hoped this would encourage states to test innovative strategies to encourage families to find employment. Only one state—Ohio—applied for a waiver under the 2012 guidance, and it was neither approved nor denied by the Obama administration.

On Aug. 30, 2017, the Trump administration rescinded the Obama-era guidance encouraging states to apply for TANF waivers, and stated that it would no longer consider Section 1115 waiver requests from states that sought to modify work requirements under TANF. It also formally rejected Ohio’s waiver request.

Lessons for Medicaid?
Work requirement proposals that helped redesign cash assistance programs decades ago are now surfacing in health policy debates, including debates over proposed federal legislation that would have supported state Medicaid work requirements.

  • On one hand, proponents of Medicaid work requirements could argue that employment has the potential to improve health, in light of studies that have long associated unemployment with poorer physical and mental health.
  • On the other hand, many state health policymakers are steadfast in their support of long-standing principles that health care should be available to vulnerable people and families regardless of work status, pre-existing health conditions, or other factors. This debate will play out in Medicaid waiver policy discussions now and in months to come.

As important as the work requirement discussion is for policymakers and beneficiaries, it should not overshadow other opportunities available under the waiver authority to address health-related needs through Medicaid and TANF innovations. In their March 2017 letter to governors, former HHS Secretary Thomas E. Price and Centers for Medicare & Medicaid Services Administrator Seema Verma signaled their commitment to empower states to innovate in their Medicaid programs by giving them more freedom to tailor programs to meet the particular needs of their residents. They also indicated their intention to streamline the Section 1115 process for states developing programs to address substance abuse. This flexibility may present an opportunity for states seeking to improve the health of vulnerable, low-income populations by focusing on health-related needs and upstream prevention.

Questions for Policymakers
Questions that may help state policymakers effectively capitalize on new flexibilities include:

  • What kinds of TANF flexibilities, if available, could most benefit complex Medicaid beneficiaries who struggle with non-clinical health needs?
  • What kind of flexibility in TANF or Medicaid could help states ensure that program eligibility and incentives are aligned to meet common goals?

When their goals are aligned, TANF and Medicaid can be vital elements in a coordinated plan of services managed at the state level to meet the needs of Medicaid beneficiaries. However, state policymakers have noted that misaligned incentives can penalize social safety net program participants by increasing their earnings through work. For example, a small increase in earned income results in reduced TANF, SNAP, child care subsidies, medical assistance, and other safety net benefits that can reduce a family’s income.

Misalignment between Medicaid and social safety net programs can also compromise states’ abilities to maximize the collective impact of these programs. A recent study documented the synergy between SNAP and health care programs. It found that enrollment in SNAP was associated with lower health care expenditures among low-income adults. States may consider how any new federal flexibility in program design or eligibility could help programs work together to maximize each program’s effectiveness at improving health and well-being.

Other questions policymakers should consider include:

  • Will federal flexibility result in a streamlined waiver application process for states seeking to replicate other states’ already-approved demonstrations that address health-related social needs?
  • As with every administration, there will be a balance between state flexibility and federal policy. How can states make the most of any new federal flexibility? What support and guidance will they need from federal agencies? What might the mixed message about TANF flexibility mean for state Medicaid programs?

In this time of federal change, looking back at past programs may help state health policymakers look ahead to future challenges and opportunities to serve their most vulnerable populations.

Support for this blog was provided by the Robert Wood Johnson Foundation. The views expressed here do not necessarily reflect the views of the foundation.