Transitional Medical Assistance (TMA): Extending Medicaid Coverage for Working Parents

Terminations of Medicaid eligibility are much in the news these days.  While the large majority of disenrollments to date have been for procedural reasons, there are individuals who have been disenrolled after a state Medicaid agency has actually made a determination that the individual is ineligible.  In these situations, the agency is required to determine that the individual is not eligible for Medicaid under any basis for eligibility, not just the basis on which the individual qualified at the time of redetermination.

One basis for eligibility is transitional medical assistance.  TMA extends Medicaid coverage for parents who would otherwise lose their eligibility due to excess income after starting work.  It appears that TMA may have fallen off the radar screen in some states and at CMS.  The purpose of this blog is to ensure that it does not go MIA during the PHE unwinding.

TMA has been around for 35 years.  It was designed to enable low-income parents with dependent children to go to work, or to increase their hours at work (perhaps by working a second or third job) without fear of losing health insurance coverage for themselves and their families. (TMA is one of a number of Medicaid provisions that support employment).  TMA was initially scheduled to sunset in 1998, but Congress periodically extended it, and in  2015 made it a permanent “health extender.”

When TMA was enacted in 1988, parents qualified for Medicaid because they were receiving cash assistance under the Aid to Families with Dependent Children (AFDC) program; loss of cash assistance due to earnings automatically resulted in loss of Medicaid coverage after four months.  Much has changed since then.

In 1996, the AFDC program was repealed and replaced with the Temporary Assistance to Needy Families (TANF) program, and a new mandatory Medicaid eligibility category, known as “section 1931” and not tied to receipt of cash assistance, was enacted for parents and other caretaker relatives. (Current 1931 income standards for each state can be found here.)  And in 2010 the ACA created a mandatory eligibility group for adults (“Medicaid expansion”) that included parents not poor enough to qualify for section 1931 coverage in their state.

In 2012 the Supreme Court ruled that the adult expansion eligibility group was optional for states.  Despite strong financial incentives to take up the option,  ten states have still not done so. In those states, parents who lose their section 1931 eligibility for Medicaid due to increased income from working do not have the option of enrolling in the Marketplace if their incomes are below 100 percent of the federal poverty level; their only source of guaranteed coverage is TMA.   While TMA also applies to states that have adopted expansion, where it could serve as a bridge to enrollment in the Marketplace for parents losing Medicaid coverage due to earnings, it holds the greatest coverage benefit for parents in non-expansion states.

Here are the basics about how TMA works.  (The details are in this CMS resource.) If the income of a parent increases due to earnings—the parent gets a raise, gets more hours at work, or lands a second (or third) job—and if those increased earnings cause the parent’s income to exceed the state’s section 1931 income standard, then the parent remains eligible for Medicaid for an initial period of six months, so long as the parent continues to live with a dependent child.  If the parent is covered for this initial six-month period, the parent can qualify for Medicaid coverage for a second six-month period if the parent continues to work each month, continues to live with a dependent child, reports quarterly on family gross income, and does not earn more than 185 percent of the federal poverty level ($45,991 for a family of three in 2023).  States have the option of streamlining TMA by adopting a single coverage period of 12 months with no quarterly reporting requirements.

Here’s an example. Assume that a parent in a family of four is working 30 hours per week at the federal minimum wage ($7.25 an hour), earning an annual income of $11,310, or 38% of the federal poverty level.  This would make her income-eligible for Medicaid coverage in a state with the median income standard for section 1931 parents in 2023 (39 percent of the federal poverty level, or $11,700 for a family of four).  If her employer offers to increase her hours to 40 per week at minimum wage, that would raise her annual income of $14,976, or 50 percent of the federal poverty level.  If she decided to work the increased hours, she would no longer be eligible for Medicaid as a section 1931 parent, but she would qualify for TMA for at least 6 months and, if she continued to work, for a full year.  In this way, TMA mitigates the loss of health insurance coverage as a disincentive for the parent to increase her work hours—a disincentive that would have particular force for a parent with a health condition that requires medical care or prescription drugs (or both).

During the PHE continuous coverage period, parents with dependent children could not lose Medicaid coverage if their earnings increased. This was true whether they were covered based on section 1931 or TMA (or, in expansion states, as expansion adults).  Now that the PHE unwinding has begun, questions have arisen about how states should conduct renewals for working parents whose eligibility coming out of continuous coverage was based on section 1931 or on TMA. For example, during the PHE continuous coverage period, did the parent experience an increase in earnings that would qualify them for TMA, and if so, when?  Did the parent report that change in circumstances to the state?  What action did the state take?  If the state did not redetermine eligibility at that point, what result?  If the state at point determined that the parent qualified for TMA and covered them on that basis, what result if that determination occurred more than 12 months before the end of the continuous coverage period, April 1, 2023?

CMS has issued numerous guidances for state Medicaid agencies on conducting renewals during the unwinding, but none of these speaks to TMA.  There are potentially hundreds of thousands, if not millions, of working poor parents in the ten non-expansion states whose incomes increased during the PHE continuous coverage period due to earnings and who continue to work while caring for children. They deserve clear guidance from CMS to state agencies on how to redetermine eligibility in a way that protects their entitlement to coverage under TMA.

Andy Schneider is a Research Professor at the Georgetown University McCourt School of Public Policy.