The Perils of Tying Medicaid to Work in Non-Expansion States
By Suzanne Wikle
South Dakota is the latest state to propose taking away health care from low-income parents who don’t work a specific number of hours. Like Kansas and Mississippi, South Dakota did not expand eligibility for Medicaid under the Affordable Care Act, which means that only very low-income parents qualify. Adults are eligible for Medicaid (unless they are disabled or elderly) if they have a dependent child in their home and earn less than 50 percent of the poverty level ($10,390 per year for a family of three). Adults without dependents are simply not eligible for Medicaid, no matter how little they earn.
Conditioning Medicaid coverage on work hours is always counterproductive, but creates a catch-22 for non-expansion states. If parents don’t work enough hours they lose their health care; if they do work enough hours they will likely earn too much to qualify for Medicaid, yet are unlikely to have health insurance through their employer. In 2017, only 24 percent of workers with earnings in the lowest 10 percent of wages were offered employer-sponsored insurance, and only 14 percent received coverage from their employer.
The federal Centers for Medicare and Medicaid Services (CMS) has not approved waivers that condition Medicaid eligibility on so-called work requirements for any non-expansion state, likely due in part to this “subsidy cliff.” CMS Administrator Verma has said “We need to figure out a pathway, a bridge to self-sufficiency.”
South Dakota’s waiver proposal tries—but fails—to solve the cliff effect created by basing Medicaid eligibility on hours of work. The truth is that there’s no way to fix the subsidy cliff other than expanding Medicaid.
South Dakota proposes to eliminate the cliff effect in two ways:
- As under current law, provide transitional Medicaid for 12 months to people whose earnings exceed the eligibility level.
- Following 12 months of transitional Medicaid, the state proposes to provide a monthly subsidy for purchasing health insurance on the ACA’s Marketplace or through an employer. The subsidy would be equal to the monthly cost of the previous year of transitional Medicaid.
This proposal has several problems. First, the subsidy is only available for one year. Next, by restricting the subsidy to people earning between 50 and 100 percent of poverty, those who receive it wouldn’t be eligible for tax credits or cost-sharing reductions when purchasing private insurance. Finally, without getting cost-sharing reductions, people will find health insurance unaffordable because of the co-pays, deductibles and co-insurance.
Here’s how South Dakota’s proposal would play out for a 37-year-old mother of one who meets the new eligibility criteria. Assuming she earns South Dakota’s minimum wage of $8.85 and is able to get 100 hours of work every month, the mother’s annual gross income would be $8,496, putting her just above the Medicaid income eligibility threshold of $8,230. As under current law, she would keep transitional Medicaid for 12 months.
After 12 months, this South Dakota mother would receive a subsidy from the state (equal to the monthly cost of transitional Medicaid) to purchase health insurance. In 2018, this is $400.09 a month, which falls short of helping her purchase private health insurance. In the Rapid City area (Pennington County), the cheapest bronze plan has a monthly premium of $427.74, a deductible of $6,000 and a total out-of-pocket maximum of $7,150. Under this scenario, this mother would have to spend 75 percent of her gross annual income on premiums and deductibles before insurance coverage kicked in. By contrast, those with an income just over the poverty level who qualify for subsidies under the Affordable Care Act would receive a subsidy based on affordability thresholds and the actual cost of coverage in their area, plus cost-sharing reductions that significantly decrease (or even eliminate) their deductible and co-pays.
The bottom line is that South Dakota’s proposed fix to Administrator Verma’s concern about a cliff effect is no fix at all. Nobody should be fooled into thinking there’s suddenly a solution to help people in the coverage gap obtain affordable care. The real solution is Medicaid expansion. It’s time for South Dakota and 16 other states that haven’t expanded Medicaid to do so.