Medicaid expansion – doing nobody a favor

Ronald E. Bachman
Ronald Bachman

Medicaid has several components, but at its core it is a health insurance program for the poor. States can differ on eligibility for the program, but most provide for those below the poverty level.

Federal health reform envisions expanding Medicaid to those earning up to 138 percent of the poverty level (about $25,000 for a family of three). The U.S. Supreme Court has ruled that each state can accept or reject the expansion. Like other states, Georgia must make its own choice.

This analysis addresses the human impact – not state financing, the national debt, or deficit spending. The key question: Is Medicaid expansion beyond the poverty level a “hand up” or a “handcuff”?

For a person in the bottom 20 percent of income, getting ahead is less likely than in other income levels in America. The Economic Mobility Project of the Pew Charitable Trusts shows 65 percent of children born in the lowest 20 percent of incomes stay in the bottom two quintiles.

If the core principle of conservatives is producing upward economic mobility, and progressives are for helping the poor, why have both ideologies failed the poorest among us? Scott Winship, a researcher at the Brookings Institution, has said, “The bottom 20 percent in the U.S. looks very different from the bottom 20 percent in other countries.” Americans are more likely than foreign peers to grow up with single mothers. In poor communities, drugs, alcohol, violence and ineffective primary and secondary schools represent a huge barrier to economic mobility. The U.S. also has uniquely high incarceration rates and a longer history of racial stratification in society.

With all those challenges, the Brookings study showed a hopeful fact: Regardless of your race or ethnic background, if you stay in school at least through high school, don’t have a child until you’re married and over 21, and work full time at any job, your chances of being poor are only 2 percent and your chances of joining the middle class are 74 percent.

More than people in other countries, poor Americans have to educate themselves and work their way up from the lower levels. The United States provides many benefits for the poor, disabled and unfortunate. No one of any rational political or ideological persuasion is opposed to helping those in need.

The key part of Medicaid is also called “Temporary Assistance for Needy Families” or TANF. Under health reform, Medicaid would be expanded to 18 million to 20 million new lives. Other health reform subsidies through exchanges are available up to 400 percent of the poverty level (about $92,000 for a family of four). Programs affecting larger percentages of the population can create an attitude of entitlement and a culture of dependency that traps large numbers of people in multi-generational poverty.

A study of entitlement programs in Colorado illuminates the concerns for Georgia and other states. Programs are available for low-income families to provide housing, food, health care, and educational and other subsidies. A single mother with two children making $25,000 could be eligible to receive about $18,000 in government benefits.

Medicaid expansion and other health reforms add new subsidies for low- and middle-income families. Using the same example of a single mother with two children, Medicaid expansion to 138 percent of the poverty level can provide an additional $7,500 in benefits to those making $25,000.

What are the effects on real people as they try to advance economically? The marginal effective tax rate from federal income taxes, payroll taxes, and state income taxes for a single mom with two children earning $25,000 is about 29.4 percent. If one includes other programs, SNAP (food stamps), state children’s health insurance programs, and the new health reform subsidies, the marginal tax rate rises to 54.5 percent. If benefits like TANF, federal housing subsidies, and WIC (nutritional program for Women, Infants, and Children) are considered, the marginal tax rate is as high as 81.9 percent, because families lose even more benefits due to higher earnings.

Who would work harder, take that extra job, or seek a promotion when most of the added earnings would be taxed away, or government benefits reduced? The destruction of initiative can be the inevitable consequence of expanding Medicaid with an additional $7,500 (for a total of over $18,000) to someone making $25,000, but providing nothing to a similar family making $75,000.

Clearly, even the most compassionate among us can see that accumulated effects of entitlement programs can break the spirit of personal responsibility and the motivation for upward mobility. Medicaid expansion and the new health reform subsidies to over 50 percent of the population are likely to produce the same dependence and economic barriers to upward mobility already evident in the lower 20 percent.

The standard of living in Georgia is directly related to its citizens’ ability to produce goods and services that others want to purchase. Subsidizing able-bodied populations does not create economic growth for those individuals or for the state. In our compassion to help those in need, we tend to look away from the politically driven expansion of those programs and the debilitating culture of dependency they enable. Georgia has apparently decided not to play that destructive game. Good for us.

As we look to the future and seek better ways to solve the problems of health care and health insurance, maybe Georgia can create an island of opportunity within a sea of growing dependency. Maybe we can remove the handcuffs of those chained to the programs and ideas of the past and offer a hand up rather than a handout.

Ronald E. Bachman is president of Healthcare Visions, an organization dedicated to lowering the number of uninsured, improving mental health coverage, and advancing the concept of health care consumerism.  Bachman is a senior fellow of the National Center for Policy Analysis, the Wye River Group on Health, and the Georgia Public Policy Foundation (GPPF).  Ron is chairman of the Editorial Advisory Board for the Institute for Healthcare Consumerism.  Bachman is also on boards for Skyland Trail, Bryan University, the Georgia Charity Care Network, HINRI Labs, and Jacobs Ladder Autism Center.