the authority to negotiate specifications for the components and services of a delivery system that must be available as a condition of awarding contracts to health plans.

In addition to controlling costs, managed care arrangements can provide the states opportunities to increase access to services, to improve coordination and quality of care, and to mainstream their beneficiaries into the general health care system. In comparison with fee-for-service Medicaid, managed care with capitation has more regular and predictable expenditures. In theory, managed care can improve access to prenatal and dental care, improve immunization rates, and increase access to preventive health services.

In practice, however, managed care does not automatically improve access to care. Many people in the children's health community are concerned about Medicaid managed care, especially for vulnerable populations such as children with special health care needs. Medicaid beneficiaries are likely to have greater health risks, poorer health status, and limited disposable cash for purchasing health care that may be needed but is beyond what is covered by Medicaid. Although managed care produces cost savings by reducing the overuse of inpatient hospitalization and emergency departments, there may also be a reduced access to pediatric specialists, which is a particular concern for children with chronic medical conditions and other special health care needs (Newacheck et al., 1996).

Impact Of Recent Federal Legislation

Welfare Reform

From the time that Medicaid began until the welfare reform law was enacted in 1996, individuals who were eligible for the Aid to Families with Dependent Children (AFDC) program automatically qualified for Medicaid coverage. Effective July 1, 1997, as part of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (P.L. 104-193; also referred to as "welfare reform"), the AFDC entitlement program was replaced with a new cash block grant to states known as Temporary Assistance to Needy Families (TANF) (see Table 5.2).

The welfare reform law included major changes affecting Medicaid eligibility. Eligibility for cash assistance no longer automatically guaranteed Medicaid eligibility. In addition, the law gave states flexibility to modify their Medicaid eligibility criteria in one of three ways:

  • reduce eligibility by lowering the income standard to a level that was in effect no earlier than May 1, 1988;
  • expand eligibility by increasing income or resource standards by a percentage that does not exceed the percentage increase in the Consumer Price Index; or
  • use methods for determining income and resources that are less restrictive than those in effect on July 16, 1996.

The majority of states chose the third option, and most states are choosing whether to expand Medicaid further under the terms of the SCHIP program in the Balanced Budget Act of 1997. The welfare reform law required states to provide 1 year of transitional Medicaid coverage for those individuals who lost their eligibility as a result of beginning to receive child support payments or beginning employment. To further address the changes of welfare reform, the Balanced Budget Act of 1997 provided funding to allow states to continue to provide Medicaid coverage for these individuals for a transitional 1-year period. With federal approval, some states have extended this transitional period to two years.

The delinking of Medicaid and welfare through the law creating TANF acts two ways: ( ) Medicaid enrollment is no longer dependent upon receipt of welfare; and (2) children can be eligible for Medicaid without being on welfare. Parents leaving the welfare rolls to take new jobs may not be aware that their



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