My husband and daughter live in a two bedroom under section 8 housing in NYC. She is mentally disabled. If we die because we are elderly, does the landlord have the right to downsize her from this apt to a one bedroom or can she stay here?

Possibilities of evicting her is more but it is also depend on her mental illness means of what level it is.  If she needs someone continuously to looking after her then it is not possible that she could stay alone. Its better that you should plan things for her first only if such situation occur.