Medicaid and Title IV-E Programs; Revision to the Definition of an Unemployed Parent

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Administration for Children and Families

Health Care Financing Administration

45 CFR Part 233

[HCFA-2106-FC]

RIN 0938-AH79

Medicaid and Title IV-E Programs; Revision to the Definition of

an Unemployed Parent

AGENCY: Administration for Children and Families (ACF), and Health Care

Financing Administration (HCFA), HHS.

ACTION: Final rule with comment period.

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SUMMARY: The Personal Responsibility and Work Opportunity

Reconciliation Act of 1996 (PRWORA) transformed the nation's welfare

system into one that requires work in exchange for time-limited

assistance. The law eliminated the Aid to Families with Dependent

Children (AFDC) program and replaced it with the Temporary Assistance

for Needy Families (TANF) program. The law provides States flexibility

to design their TANF programs in ways that

[[Page 42271]]

strengthen families and promote work, responsibility, and self-

sufficiency while holding them accountable for results. Many States are

using this flexibility to provide welfare to work assistance to two

parent families, which was more difficult to do under the old welfare

rules. However, pre-existing regulations regarding the definition of

``unemployed parent'' prevent some States from providing intact

families with health insurance to help them stay employed. This rule

will eliminate this vestige of the old welfare system in order to

promote work, strengthen families, and simplify State program

administration.

In general under PRWORA, States must ensure that families who would

have qualified for Medicaid health benefits under the prior welfare law

are still eligible.

While under the previous law receipt of AFDC qualified families for

Medicaid, the new statute does not tie receipt of TANF to Medicaid.

Instead, subject to some exceptions, Medicaid eligibility for families

and children now depends upon whether a family would have qualified for

AFDC under the rules in effect on July 16, 1996. Similarly, Federal

foster care eligibility depends on whether the child would have

qualified for AFDC under the rules in effect on July 16, 1996.

In order for a family to qualify for assistance under the pre-

PRWORA AFDC rules, its child had to be deprived of parental support or

care due to the death, absence, incapacity, or unemployment of a

parent. Two parent families generally qualified only under the

``unemployment'' criterion which was narrowly defined in the AFDC

regulations. In this final rule with comment, we are amending these

regulations to provide States with additional flexibility to provide

Medicaid coverage to two parent families, facilitate coordination among

the TANF, Medicaid and foster care programs, increase incentives for

full-time work, and allow States to eliminate inequitable rules that

are a disincentive to family unity.

DATES: Effective Date: These regulations are effective on August 7,

1998.

Comments: Written comments will be considered if we receive them at

the appropriate address, as provided below, no later than 5:00 p.m. on

October 6, 1998.

ADDRESSES: Mail written comments (one original and three copies) to the

following address: Health Care Financing Administration, Department of

Health and Human Services, Attention: HCFA-2106-FC, P.O. Box 7517,

Baltimore, MD 21207-0517.

If you prefer, you may deliver your written comments (one original

and three copies) to one of the following addresses:

Room 309-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW,

Washington, D.C., or

Room C5-09-27, Central Building, 7500 Security Boulevard, Baltimore,

Maryland.

Because of staffing and resource limitations, we cannot accept

comments by facsimile (FAX) transmission. In commenting, please refer

to file code HCFA-2106-FC. Comments received timely will be available

for public inspection as they are received, generally beginning

approximately 3 weeks after publication of a document, in Room 309-G of

the Department's offices at 200 Independence Avenue, SW, Washington,

DC, on Monday through Friday of each week from 8:30 a.m. to 5 p.m.

(Phone: (202) 690-7890).

If you wish to submit written comments on the information

collection requirements contained in this final rule with comment

period, you may submit written comments to the following:

Laura Oliven, HCFA Desk Officer, Office of Information and Regulatory

Affairs, Room 3001, New Executive Office Building, Washington, D.C.

20503; and

Health Care Financing Administration, Office of Information Services,

Security and Standards Group, Division of HCFA Enterprise Standards,

Room C2-26-17, 7500 Security Boulevard, Baltimore, MD 21244-1850.

FOR FURTHER INFORMATION CONTACT: Judith Rhoades, (410) 786-4462

(Medicaid), Terry Lewis, (202) 205-8102 (title IV-E foster care).

SUPPLEMENTARY INFORMATION:

I. Background

The Personal Responsibility and Work Opportunity Reconciliation Act

of 1996, Public Law 104-193 (commonly referred to as welfare reform),

enacted on August 22, 1996, replaced the Federal/State program of Aid

to Families With Dependent Children (AFDC) with a new program of block

grants to States for Temporary Assistance for Needy Families (TANF).

This change has substantial implications for Medicaid and title IV-E

foster care eligibility. Prior to the enactment of Public Law 104-193,

under section 1902(a)(10)(A)(i)(I) of the Social Security Act (the

Act), individuals who received AFDC cash assistance or were deemed to

have received AFDC were automatically eligible for Medicaid. Section

114 of Public Law 104-193 amended the Act by redesignating section 1931

as section 1932 and inserting a new section 1931 which establishes a

new Medicaid eligibility group for low-income families that is related

to eligibility requirements of the AFDC program in effect on July 16,

1996. Section 108(d) of Public Law 104-193 amended title IV-E of the

Act to provide for Federal foster care eligibility of children who

would have been eligible for AFDC under the June 1, 1995 requirements.

Section 5513(b) of the Balanced Budget Act of 1997 (Public Law 105-33)

amended sections 472 and 473 of the Act to replace the reference to the

June 1, 1995 AFDC requirements date (regarding title IV-E foster care

eligibility), with a reference to July 16, 1996 AFDC requirements. This

technical change makes the July 16, 1996 date consistent with the

Medicaid AFDC eligibility provisions. In other words, the financial

eligibility standards and deprivation requirements of the States' pre-

welfare reform AFDC programs will be used to determine Medicaid and

title IV-E foster care eligibility. One requirement in both programs is

that a child in a family must be deprived of parental support or care

by reason of the death, absence, incapacity, or unemployment of a

parent (the pre-welfare reform AFDC deprivation provision).

Under the AFDC program, States were required to provide cash

assistance to families in which the principal wage earner was

unemployed. Unemployment of the principal wage earner constituted a

type of dependency relationship under the AFDC program. Section 407(a)

of the Act authorized the Secretary to prescribe standards for

determining unemployment for purposes of this requirement. It did not

specifically define unemployment. In accordance with this provision,

the Secretary established an hour standard for determining

unemployment, with an exception for certain intermittent work, under

current regulations at 45 CFR 233.101(a)(1). Specifically,

Sec. 233.101(a)(1) provides that the definition of unemployed must

include any such parent who is employed less than 100 hours a month; or

exceeds that standard for a particular month, if the work is

intermittent and the excess is of a temporary nature as evidenced by

the fact that the parent was under the 100-hour standard for the prior

2 months and is expected to be under the standard during the next

month. These pre-welfare reform regulations apply for purposes of

determining whether a

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family would have qualified for AFDC under the statute in effect on

July 16, 1996, which is part of the test for Medicaid eligibility.

Under TANF, States will no longer be mandated to provide cash

assistance to intact families on the basis of unemployment but may

choose to do so. Some States may establish more restrictive eligibility

standards for cash assistance and some may provide more expansive ones,

but all States must use the prior law AFDC standards in determining

Medicaid eligibility. For administrative simplicity, a State may wish

to align the eligibility requirements of the new Medicaid eligibility

group with its requirements under TANF. In consultation with States, we

have learned that many States believe the definition of unemployment

established under Sec. 233.101(a)(1) for the AFDC program is

inequitable and excessively restrictive. They do not intend to continue

using the definition under their TANF programs. Some States believe

that this definition is anti-family and disadvantages intact families.

Under the AFDC program, employment in excess of 100 hours per month was

immaterial for single-parent families. Some States believe if they were

to import the 100-hour rule into their TANF programs, families in which

a principal wage earner is employed over 100 hours per month, but whose

income is below the cash assistance standard, may actually break up in

order to be eligible for cash assistance.

States have indicated they would like to align eligibility of TANF,

foster care, and Medicaid programs for programmatic reasons (such as

facilitating Medicaid eligibility) and administrative simplicity.

However, the existing definition of unemployment in Sec. 233.101(a)(1)

will stand in the way of this alignment if a State chooses to apply a

more liberal definition of employment under its TANF program.

We agree with States that the existing definition of unemployment

is too restrictive. It imposes an impediment to administrative

simplification particularly for those States that believe that the

policy is inequitable and discourages family unity. For these reasons,

we are revising the definition of unemployment to allow States the

opportunity to adopt more flexible definitions of unemployment. This

revision will allow States to align their TANF, foster care, and

Medicaid programs and thereby allow administrative simplification. It

will also allow States to eliminate policies they believe to be

inequitable and a disincentive to family unity. We expect that some

States will choose to consider the principal wage earner to be

unemployed if the family income is below the applicable cash assistance

standard. Under welfare reform demonstration projects, 32 States have

statewide title IV-A waivers that allow them to treat single-parent and

two-parent recipient families the same. In these States, eligibility

for cash assistance is not terminated solely on the basis of hours

worked. It is expected that these States will use section 1931(d)

authority to continue this policy under their TANF programs for

purposes of Medicaid eligibility. However, it is expected that

additional States may wish to adopt a similar policy under their TANF

programs for purposes of Medicaid eligibility. (Six States have related

title IV-A waivers in limited areas of the State. The section 1931(d)

authority cannot be used to continue these waivers on a statewide basis

under TANF.)

Section 1931(b) of the Act, as added by Public Law 104-193,

provides that an individual must be treated as receiving aid or

assistance under a State plan approved under title IV only if the

individual meets the income and resources standards and methodologies

and the eligibility requirements of the State's title IV-A plan under

section 406(a) through (c) and section 407(a) of the Act as in effect

as of July 16, 1996. Section 407(a) defined ``dependent child'' to

include a needy child ``who has been deprived of parental support or

care by reason of the unemployment (as determined in accordance with

standards prescribed by the Secretary) of the parent who is the

principal wage earner.'' The regulations promulgated under the section

407(a) authority generally imposed a 100-hour test to determine

unemployment of the principal wage earner (45 CFR 233.101(a)(1)).

Nevertheless, we believe that the reference in section 1931(b) to the

requirements of section 407(a) as in effect on July 16, 1996 does not

freeze those regulations in place. Rather, it refers to the statutory

test for unemployment, which is itself subject to regulation by the

Secretary. In view of the new flexibility contained in the TANF statute

and the desirability of coordinating Medicaid and foster care rules

with expanded TANF criteria, we believe that section 1102 of the Act

affords the Secretary with the authority to provide States with the

discretion to liberalize their definitions of unemployment for purposes

of Medicaid eligibility. Therefore, we are revising the regulations at

45 CFR 233.101(a)(1) to permit States to include families with

unemployed parents who would not have met the 100-hour rule contained

in the existing regulation.

II. Provisions of the Final Rule With Comment Period

We are revising Sec. 233.101(a)(1) to specify that a State's

definition of unemployed, for purposes of Medicaid and title IV-E

eligibility, must have a reasonable standard and, at a minimum, include

any such parent who is employed less than 100 hours a month, or meets

the exception for certain intermittent work specified in existing

regulations.

Under the revised definition, States will not be allowed to define

unemployment in any way that is more restrictive than the existing

definition. This is because the intent of the welfare reform

legislation was to protect Medicaid and title IV-E eligibility for any

individuals who would have been eligible under the AFDC rules

previously in effect. Furthermore, the revised regulation does not

require States to adopt a broader definition of unemployment, since

there in no indication that the Congress intended to mandate expanded

eligibility beyond the statutory baseline.

In addition, States will be required to develop a reasonable

standard as part of the definition of unemployment. That standard may

be based on hours of work and/or dollar amounts and may include family

size and/or time elements.

III. Regulatory Impact Statement

HCFA has examined the impact of this final rule with comment period

as required by Executive Order 12866 and the Regulatory Flexibility Act

(RFA) (Public Law 96-354). Executive Order 12866 directs agencies to

assess all costs and benefits of available regulatory alternatives and,

when regulations are necessary, to select regulatory approaches that

maximize net benefits (including potential economic environments,

public health and safety, other advantages, distributive impacts, and

equity). We believe that this final rule with comment period is

consistent with the regulatory philosophy and principles identified in

the Executive Order. The RFA requires agencies to analyze options for

regulatory relief for small businesses. For purposes of a RFA,

individuals and States are not considered to be small entities.

In addition, section 1102(b) of the Act requires us to prepare a

regulatory impact analysis for any final rule that may have a

significant impact on the operations of a substantial number of small

rural hospitals. Such an analysis must conform to the provisions of

section 604 of the RFA. With the

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exception of hospitals located in certain rural counties adjacent to

urban areas, for purposes of section 1102(b) of the Act, we define a

small rural hospital as a hospital that is located outside of a

Metropolitan Statistical Area and has fewer than 50 beds.

This final rule with comment period makes a change necessary to

facilitate the coordination of Medicaid with TANF in cases where a

State has expanded coverage under its TANF plan beyond the definition

of unemployed parent that was contained in existing AFDC regulations.

The rule revises the definition of unemployment of a principal wage

earner for purpose of unifying families.

We estimate that this rule meets the threshold under Executive

Order 12866 of an effect on the economy of $100 million or more and

thus requires a regulatory impact analysis as an economically

significant rule. Therefore, we have developed the following analysis

in combination with the remainder of this preamble.

Although this rule is considered an economically significant rule,

we believe that the legislative intent of the Congress in passing the

PRWORA was to encourage needy families to withdraw from welfare

dependency over time, and at the same time provide them with temporary

assistance. Therefore, we believe it is necessary to revise the

definition of an unemployed parent to achieve these goals.

The table below shows estimates of Federal and State shares of

Medicaid program costs that may be incurred as a result of this

regulation. These estimates are based on an initial simulation study

conducted in 1996 by the Urban Institute to determine the impact of

repealing the 100-hour rule in those States that did not have IV-A

waivers at that time. This simulation produced an estimated increase of

1.275 million individuals who would meet AFDC eligibility requirements

as a result of repeal of the 100-hour rule. Of these 1.275 million

individuals, the Urban Institute estimated that .546 million--mostly

adults--would gain Medicaid eligibility specifically because of the

change; the balance would have been eligible for Medicaid already,

under other Medicaid eligibility provisions. Of all the adults gaining

AFDC eligibility as a result of the change, the Urban Institute

estimated that 83 percent would also gain Medicaid eligibility as a

result (that is, would not otherwise have been eligible for Medicaid).

Our estimate starts from the Urban Institute numbers of potential

new Medicaid eligibles, and updates them using a corrected list of

States that currently have statewide or substate IV-A waivers. (Over 30

States have approved IV-A waivers, either Statewide or substate.) We

assumed no Medicaid effect in those States in which the 100-hour rule

is already waived, and we assumed further that these waivers would

remain in effect throughout the estimate period.

Then, for the remaining States, we projected population growth,

Participation rates, and Medicaid per capita costs over the 5-year

estimate period. We also assumed that only adults would be affected by

any broadening of the definition of unemployment, since children would

most likely be covered already through other eligibility mechanisms.

This methodology produced an estimate of Medicaid costs for

implementation of this expansion of coverage.

Because this regulation provides States with an option, it is

difficult to predict State behavior. On the one hand, it could be

assumed that if a State had wanted to use an unemployment standard

different from the 100-hour rule, it would have done so already,

through the waiver mechanism; by that logic, the additional cost of

this regulation would be minimal. On the other hand, the new TANF

program, with its new eligibility requirements and its disconnection

from Medicaid eligibility, provides new incentives that may not have

been present before, and, conceivably all States may wish to

immediately avail themselves of the option to change the 100-hour rule.

This latter scenario would produce maximum costs. A poll of the States

indicated that many had already dropped the 100 hour rule from their

TANF program, and conceivably these States would be interested in doing

the same for their Medicaid program. For the purposes of this estimate

we assumed that expenditures in States that do not currently have

waivers would increase so that the cost of this change would ultimately

reach three-fourths of the estimated maximum possible amount.

Accordingly, we expect this final rule to result in the following

costs:

----------------------------------------------------------------------------------------------------------------

1999 2000 2001 2002 2003

----------------------------------------------------------------------------------------------------------------

Federal......................... $35 $85 $140 $160 $175

State........................... 25 60 105 125 135

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($ in millions, rounded to the nearest $5 million).

A separate but similar analysis was conducted for the title IV-E

foster care and adoption assistance programs. Because more than 90

percent of children who are eligible for foster care and adoption

assistance would qualify for these programs according to other rules

unaffected by this revision, we determined that this revision would

have no cost impact on foster care or adoption assistance.

These final regulations affect only States and individuals, which

are not defined as small entities. We have determined and certify that

this final rule with comment period will not have a significant

economic impact on small entities under the threshold criteria of the

RFA. However, we have provided an analysis of the impact on States and

individuals under E.O. 12866. Further, we certify that this final rule

with comment period does not have a significant impact on the

operations of a substantial number of small rural hospitals.

The only alternative to implementing this provision is not to

publish this regulation. However, not publishing this provision would

impose additional barriers to family unity and administrative

simplification of State Medicaid programs.

There will be an offset for the cost of these final regulations.

In accordance with the provisions of Executive Order 12866, this

regulation was reviewed by the Office of Management and Budget.

IV. Collection of Information Requirements

Under the Paperwork Reduction Act of 1995, agencies are required to

provide 60-day notice in the Federal Register and solicit public

comment before a collection of information requirement is submitted to

the Office of Management and Budget (OMB) for review and approval. In

order to fairly evaluate whether an information collection should be

approved, section 3506(c)(2)(A) of the Paperwork

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Reduction Act of 1995 requires that we solicit comment on the following

issues:

Whether the information collection is necessary and useful

to carry out the proper functions of the agency;

The accuracy of the agency's estimate of the information

collection burden;

The quality, utility, and clarity of the information to be

collected; and

Recommendations to minimize the information collection

burden on the affected public, including automated collection

techniques.

Section 233.101 of this final rule with comment period contains

requirements that are subject to review by the Office of Management and

Budget under the Paperwork Reduction Act of 1995. The rule requires

States to amend their State plans to specify a reasonable standard for

measuring unemployment. Public reporting burden for this collection of

information is estimated to be 1 hour per State. A notice will be

published in the Federal Register when approval is obtained.

Organizations and individuals desiring to submit comments on the

information collection and recordkeeping requirements should direct

them to the OMB official and HCFA/OFHR whose names appear in the

ADDRESSES section of this preamble.

V. Other Required Information

A. Waiver of Proposed Rule and 30-Day Delay in the Effective Date

We ordinarily publish a notice of proposed rulemaking in the

Federal Register for a substantive rule to provide a period of public

comment. However, pursuant to 5 U.S.C. (United States Code) 553(b)(B)

we may waive that procedure if we find good cause that notice and

comment are impractical, unnecessary, or contrary to the public

interest. In addition, we also normally provide a delay of 30 days in

the effective date. However, if adherence to this procedure would be

impractical, unnecessary, or contrary to public interest, we may waive

the delay in the effective date.

We are adopting this regulation as a final rule with comment period

without publication of a notice of proposed rulemaking because we

believe it would be impractical and contrary to public interest to

delay allowing States flexibility in implementing the welfare reform

legislation. The effective date for the TANF program depends on the

date the State submits a State TANF plan to the Secretary. However, the

limit on State funding under title IV-A is effective on October 1,

1996. We believe that it is imperative to allow States as much

flexibility as possible, and as soon as possible, to align the

eligibility requirements of the Medicaid program with the TANF program

to aid administrative simplification and eliminate any disincentive to

family unity on the part of recipients. The sooner States have the

flexibility to align these programs, the more likely it is that

additional individuals will receive needed health coverage. Also,

providing States with flexibility at the earliest possible time will

minimize unnecessary systems changes they would otherwise incur in

making the transition to the post-AFDC environment. Therefore, we find

good cause to waive proposed rulemaking and issue these regulations as

final.

For reasons discussed above, we also find good cause to waive the

usual 30-day delay in the effective date so that the revisions to the

definition may take effect upon publication of this final rule with

comment period.

Although we are publishing this as a final rule, we are providing a

60-day period for public comment.

B. Effect of the Contract With America Advancement Act, Pub. L. 104-121

Normally, under 5 U.S.C. 801, as added by section 251 of Pub. L.

104-121, the effective date of a major rule is delayed 60 days for

Congressional review. This has been determined to be a major rule under

5 U.S.C. 804(2). However, as discussed above, for good cause, we find

that prior notice and comment procedures are impracticable and contrary

to the public interest. Pursuant to 5 U.S.C. 808(2), a major rule shall

take effect at such time as the Federal agency promulgating the rule

determines if for good cause it finds that notice and public procedure

is impracticable or contrary to the public interest. Accordingly, under

the exemption provided under 5 U.S.C. 808(2), these regulations are

effective August 7, 1998.

VI. Response to Comments

Because of the large number of items of correspondence we normally

receive on Federal Register documents published for comment, we are not

able to acknowledge or respond to them individually. We will consider

all comments we receive by the date and time specified in the DATES

section of this preamble, and, if we proceed with a subsequent

document, we will respond to the comments in the preamble to that

document.

List of Subjects in 45 CFR Part 233

Aliens, Grant Programs-Social Programs, Public Assistance Programs,

Reporting and recordkeeping requirements.

45 CFR Part 233 is amended as follows:

PART 233--COVERAGE AND CONDITIONS OF ELIGIBILITY IN FINANCIAL

ASSISTANCE PROGRAMS

1. The authority citation for part 233 continues to read as

follows:

Authority: 42 U.S.C. 301, 602, 602 (note), 606, 607, 1202, 1302,

1352, and 1382 (note).

2. In Sec. 233.101, the introductory text of paragraph (a) is

republished and paragraph (a)(1) is revised to read as follows:

Sec. 233.101 Dependent children of unemployed parents.

(a) Requirements for State plans. Effective October 1, 1990 (for

Puerto Rico, American Samoa, Guam, and the Virgin Islands, October 1,

1992), a State plan must provide for payment of AFDC for children of

unemployed parents. A State plan under title IV-A for payment of such

aid must:

(1) Include a definition of an unemployed parent who is the

principal earner which shall apply only to families determined to be

needy in accordance with the provisions in Sec. 233.20 of this part.

Such definition must have a reasonable standard for measuring

unemployment and, at a minimum, include any such parent who:

(i) Is employed less than 100 hours a month; or

(ii) Exceeds that standard for a particular month, if the work is

intermittent and the excess is of a temporary nature as evidenced by

the fact that he or she was under the 100-hour standard for the prior 2

months and is expected to be under the standard during the next month;

except that at the option of the State, such definition need not

include a principal earner who is unemployed because of participation

in a labor dispute (other than a strike) or by reason of conduct or

circumstances which result or would result in disqualification for

unemployment compensation under the State's unemployment compensation

law.

* * * * *

(Catalog of Federal Domestic Assistance Program No. 93.778, Medical

Assistance Program)

[[Page 42275]]

Dated: October 14, 1997.

Nancy-Ann Min DeParle,

Deputy Administrator, Health Care Financing Administration.

Dated: October 23, 1997.

Olivia A. Golden,

Principal Deputy Assistant Secretary, Administration for Children and

Families.

Dated: January 28, 1998.

Donna E. Shalala,

Secretary.

[FR Doc. 98-21146 Filed 8-4-98; 1:23 pm]

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