SEC. 3. STATE OPTION FOR ELIGIBILITY FOR INDIVIDUALS.

(a) IN GENERAL- Section 1903(f) of the Social Security Act (42 U.S.C. 1396b(f)) is amended--

(1) in paragraph (4)(C), by inserting `subject to paragraph (5),' after `does not exceed', and

(2) by adding at the end the following:

`(5)(A) A State may waive the income limitation described in paragraph (4)(C) in such cases as the State finds the potential for employment opportunities would be enhanced through the provision of such services.

`(B) In the case of an individual who is made eligible for medical assistance because of subparagraph (A), notwithstanding section 1916(b), the State may impose a premium based on a sliding scale relating to income.'.

(b) EFFECTIVE DATE- The amendments made by subsection (a) shall apply to medical assistance provided for items and services furnished on or after January 1, 1998.