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Rumple: Medicaid expansion and social welfare

Published July 20, 2013 1:01 am
This is an archived article that was published on sltrib.com in 2013, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

A total of 8.8 million people lost their jobs in the Great Recession. Overlapping the economic pain are life's other catastrophes, such as 20.3 million people in the United States, aged 21 to 64, classified as seriously disabled as of 2010. Even if you were fortunate enough to retain your job, all of us know someone who lost a job or suffered a disability.

Many of those unemployed and/or disabled have had to fall back on government social welfare programs such as Medicaid, food stamps and public housing assistance to help with the bare necessities. Many of these unfortunate people want to get back on their feet. Simple enough? Well, no.

Nearly all social welfare programs are, with justification, means tested. In other words, as you earn more income, your benefits and (eventually) eligibility are eliminated. But this creates a conundrum. The combination of reduced eligibility and rising income/payroll taxes can create situations in which an additional dollar of earned income is more than offset by reduced benefits and higher taxes.

Work and self-sufficiency come with a severe financial penalty. Work more, get less. You are, in fact, incentivized to avoid that additional dollar of earned income.

Incentives matter. Nobel laureate economist Milton Friedman's life work was centered on the concept that incentives are highly influential in human behavior. Economist Arthur Laffer (famous for his curve analyzing government tax receipts) has analyzed the dilemma of disincentives to leave social welfare programs recently in the pages of The Wall Street Journal.

There is likely no way to completely escape such disincentives for any means-tested social welfare program, but many respected economists believe that gradually phasing out the benefits is the best way to mitigate the disincentives.

Utah is facing a decision whether to expand the eligibility for Medicaid under the Affordable Care Act (also known as ObamaCare). Under the proposed expansion, more people will be eligible for Medicaid, and they will be able to remain eligible for Medicaid while earning higher amounts of income (up to 138 percent of the federal poverty level).

Once above that income level, you must buy insurance on your own, albeit with the assistance of subsidies (which in turn phase out with yet-higher income levels). The expansion of Medicaid will provide exactly the kind of gradual phaseout of assistance that does the best job of mitigating the disincentives to leave public welfare.

Without Medicaid expansion, a person getting back on his/her feet and earning more income faces a much earlier and abrupt loss of Medicaid, putting that person into a situation where he likely can't afford any health insurance, but where he could now be required to buy his own health insurance. It may very well seem to him like a double penalty.

I believe it's safe to assert that a majority of Utahns support a system that provides the best incentives for disadvantaged and unfortunate Utahns to escape dependency on the government and achieve/regain self-sufficiency. We more fortunate Utahns may not be able to fully appreciate the pain and suffering that our fellow citizens have endured.

In addition, most Utahns understand that in many situations markets function more effectively than the alternatives because humans respond to incentives. Despite the vocal criticism, ObamaCare, through Medicaid expansion, provides the best incentives and means for many of our fellow Utahns to escape social program dependency.

Eric Rumple recently retired from a career in corporate finance. He analyzes public policy matters for Alliance for a Better Utah






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