House Budget Committee Chairman Paul Ryan’s claim that health reform creates a “poverty trap” that discourages poor families from working has it backwards, as my colleague Jared Bernstein notes. Chairman Ryan’s proposals to repeal health reform and block-grant Medicaid would more likely increase work disincentives, particularly among poor parents with serious medical conditions and other ongoing health care needs.
To see why, let’s consider a hypothetical Jane — a very poor working parent with two children and with income of 60 percent of the poverty line (about $11,875).
- If Jane lives in a state taking up health reform’s Medicaid expansion, she can significantly expand her hours or take a much higher-paying job, earning up to $27,310, and still retain Medicaid. Even if her income rises above $27,310, she can get subsidized coverage through the new health insurance marketplaces (also known as exchanges). As the Congressional Budget Office (CBO) states, “some people who would have been eligible for Medicaid under prior law — in particular, working parents with very low income — will work more as a result of the [Affordable Care Act’s] provisions.”
- Before health reform’s major coverage expansions took effect this year, Medicaid eligibility for working parents ended at just 61 percent of the poverty line in the typical state. So, if health reform (including the Medicaid expansion) were repealed, which Chairman Ryan supports, Jane would lose Medicaid if she worked more hours or took a higher-paying job (though her children would still be eligible for Medicaid or CHIP). She could receive transitional Medicaid for a limited time but would likely end up uninsured if her employer didn’t offer job-based coverage (very low-wage jobs mostly don’t come with health coverage) or she couldn’t afford that coverage.
If Jane has a serious medical condition or other health needs that require ongoing treatment, she might feel that she had to retain Medicaid, even if that meant giving up a higher-paying job. She could thus be “trapped,” in Chairman Ryan’s words, but this would result from health reform’s repeal, not its enactment.
Converting Medicaid to a block grant, which Chairman Ryan also favors, would only worsen the impact on work incentives. Chairman Ryan’s 2013 budget plan would have cut federal Medicaid funding by one-third, likely forcing all states to sharply cut eligibility, benefits, and/or payments to health care providers. The Urban Institute estimated that 14 to 20 million people would lose Medicaid under an earlier Ryan block-grant proposal, and this estimate doesn’t count the millions who would lose coverage from repealing the Medicaid expansion.
Medicaid income limits for working parents would likely be even lower under a block grant than they were before health reform. That would worsen the problem that Chairman Ryan expressed concern about because Jane would have an incentive to cut her hours and earnings in order to retain Medicaid.
But what about poor, non-disabled adults without children, who generally weren’t eligible for Medicaid before health reform? Now that they can get Medicaid (if they live in an expansion state), will they work significantly less? The evidence to date says there will be, at most, a small effect.
As we have pointed out, researchers using data from the Oregon Health Study — a landmark, ongoing study of the state’s Medicaid program — found that enrolling in Medicaid did not discourage people from working. The data showed no statistically significant difference between a group of low-income adults selected for Medicaid and a control group that remained on a waiting list, either in the share with earnings or in the amount of earnings.
A study of Tennessee’s Medicaid program found increases in employment among some adults after losing Medicaid, which might suggest that expanding Medicaid reduces work. But Urban Institute researcher Austin Nichols points out that the study doesn’t have the same unbiased experimental evidence as the Oregon study, since the comparison group used in the Tennessee study were adults who lived in neighboring states. And when he tried to replicate its findings, he found no significant effect of the Medicaid eligibility reduction on employment.
After examining the research literature, Nichols concludes: “The best guess is that Medicaid expansions have no effect on labor supply.” Even CBO concludes that, on balance, health reform’s Medicaid expansion will have only a relatively modest impact on labor supply.