Existing rules limit Medicaid eligibility for certain individuals to extremely low income levels that were related to the levels used in the old Aid to Families with Dependent Children (AFDC) program, prior to welfare reform. Now the Department of Health and Human Services has published final rules that should help enable more low-income Americans with high medical expenses to gain health coverage under Medicaid.

The new final rule is aimed at assisting those individuals whose income is slightly higher than the traditional Medicaid income limits, but who are struggling with medical bills. Under the old rules, states could offer Medicaid coverage to such individuals only after they had spent enough on their medical bills to place them below the state's medically needy income standard, which is often far below the poverty level. Under the new rule, a state may disregard increased portions of a person's income, such as certain living expenses, before determining whether the individual is eligible for Medicaid.

The elderly and people with disabilities could greatly benefit from this new rule. The old rules contained "institutional bias" that made it easier to qualify for Medicaid while living in an institution such as a nursing home. The new rules will allow states flexibility to change their own rules so that elderly and people with disabilities would not have to lose their health coverage if they move into a community setting.