What’s up this week at Oklahoma Policy Institute? The Weekly Wonk is dedicated to this week’s events, publications, and blog posts.

This week at OK Policy, summer intern Trevor Shanklin makes the case for reconsidering the criminalization of marijuana in Oklahoma.  With our prison system currently operating at 96 percent capacity, over half of which are non-violent offenders, it’s time for a well-informed discussion on the costs and benefits of prohibition.  We also took up corrections reform on our blog this week.  Although our prison population has doubled since the mid-90s, the Department of Corrections budget has been reduced by about $43 million since 2009.  While state leaders made real progress on corrections reform this year, we discuss what still needs to be done.

Yesterday’s blog post revisited the ‘cliff effect’ -  the abrupt loss of all work-support benefits when a low-income family earns a small increase in wages and becomes ineligible.  The Department of Human Services recently announced new eligibility rules for child care subsidies, effectively penalizing working parents who have moved up the income ladder by withdrawing support just when financial security is within their reach.  Last but not least, we interviewed fourth grade teacher Anna Eller on ways that teachers can encourage children to make healthier choices.

In the Know, Policy Notes

• The Center on Budget and Policy Priorities looks at the myths and realities about who pays federal taxes.
• A Pulitzer Prize winning reporter who worked for The Washington Post tells his story of living as an undocumented immigrant.
• The Urban Institute has a new brief summarizing the effects of health reform on small businesses and their workers.
• Illinois is pulling out of the Secure Communities program because it was identifying too many undocumented immigrants with only minor convictions or no criminal record.
• The AP looks at how lawmakers across the country are attempting to collect unpaid taxes on Internet sales to close state budget gaps.

Numbers of the Week

• 78,000 – Number of millionaires living in Oklahoma in 2010.
• $2,983,362 – Amount paid by 8 pharmaceutical companies to Oklahoma providers between 2009-2011.
• 2^nd – Oklahoma’s rank in a national survey of states with the highest concentration of Wal-Mart stores, with 103 locations in 2011.
• 6 – Number of abortion providers – clinics, hospitals, private physicians – in the state of Oklahoma, 2008.
• 16 percent – Percentage of the civilian population of Oklahoma without health insurance in 2009; Oklahoma ranks 34th highest nationally on percentage of the population that is uninsured.

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Last week, the Department of Human Services announced new co-payment and eligibility rules for the child care subsidy program, which we discussed in this post. By lowering the eligibility threshold for subsidies, the new rules will worsen the “cliff effect” whereby workers with the opportunity to move up the income ladder are penalized by losing work support benefits. Here we rerun a blog post on this subject that first appeared in June 2009; we have also discussed how health care reform promises to significantly improve the situation.

In recent years, whenever I’ve participated in forums on poverty and barriers to self-sufficiency, the single barrier raised most often and most fervently by those who work with low-income individuals and by low-income individuals themselves is the “cliff effect”. A 2007 report prepared for the Women’s Foundation of Colorado and the Women and Family action Network Coalition defined the cliff effect as follows:

Eligibility for work support benefits is typically based on income, so as their earnings increase, families lose eligibility for supports. A benefit cliff occurs when just a small increase in income leads to the complete termination of a benefit. The result is that parents can work and earn more, while their families end up worse off than they were before.

The cliff effect is most dramatic for Medicaid health insurance coverage, which tends to be an all-or-nothing benefit. Children in Oklahoma are eligible for Medicaid up to 185 percent of the federal poverty level, while adults lose eligibility when they make less than 50 percent of the poverty level. Other work support programs, including the earned income tax credit, the food stamp program, and child care subsidies, minimize the cliff effect by phasing out the amount of benefits at higher incomes, or in the case of child care subsidies, requiring higher co-payments. The cumulative effect, however, is that for most low-income workers who are attempting to move up the income ladder, additional earnings can be largely or fully offset by higher taxes and the loss of benefits. At a certain threshold, workers find themselves in a situation where the rational response to an offer of a raise or a better job is to respond, “Sorry, but I just can’t afford it.”

Concern about the cliff effect has been expressed by researchers and policy experts from both the liberal and conservative ends of the ideological spectrum. The Women’s Foundation of Colorado has even filmed a video on the cliff effect, which you can watch on You Tube. At this past year’s Fall Forum of the Oklahoma Institute for Child Advocacy identified the cliff effect as one of their top advocacy priorities for the 2009 session:

The 2009 Children’s Agenda supports efforts to reduce the “cliff effect” that results in an abrupt loss of all work-support benefits when a low-income family earns a small increase in wages by increasing the income eligibility limits for child care subsidies and phasing out benefits more gradually.

OICA and others have been working with the child care division of the Oklahoma Department of Human Services to modify the income eligibility limits for subsidized care to reduce the cliff effect. This would involve raising the eligibility threshold but having higher-income recipients contribute a larger co-payment. DHS proposed new eligibility standards that they estimate would provide subsidized care for an additional 1,600 children in higher-income households (those with incomes up to roughly $29,000 for families with one child in care and $43,500 for families with multiple children in care) at a cost of $3.5 million. The proposal is still under review.

Ultimately, though, any solution to the cliff  effect must begin by filling the chasm between Medicaid eligibility and unsubsidized private insurance. There are reasons to be optimistic. The Insure Oklahoma program already offers subsidized health insurance for adults up to 200 percent of the poverty level, who are required to contribute 15 percent of the cost of the premium up to a maximum of 5 percent of family income. Efforts to expand eligibility for Insure Oklahoma up to 250 percent of poverty for adults and 300 percent for children await federal approval. However, the program currently serves only 20,000 Oklahomans and may run out of funding once it reaches 35,000 to 40,000 people.

Federal health care reform efforts may provide a more comprehensive solution. Most variations of the proposals being developed in Congress involve a “Health Insurance Exchange” that would offer subsidies for those who earn too much to qualify for Medicaid but who are not offered or cannot afford the full cost of employer-based coverage. The Senate Finance Committee recently released a paper that proposed refundable tax credits on a sliding scale for taxpayers with incomes between 100 percent and 400 percent of the federal poverty level (which would exceed $80,000 for a family of four) for those who purchase coverage on the Exchange.

If national health care reform becomes a reality with mechanisms to help low- and moderate-income families with the costs of coverage, the sad refrain of “sorry, I can’t afford that raise” may be heard far less often.

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Last June, I posted a blog which I titled “Sorry, I can’t afford that raise” discussing the cliff effect. This is the situation  that occurs whereby low-income working families lose eligibility for public benefit and work support programs as their incomes rise.  As described in a 2007 report prepared for the Women’s Foundation of Colorado and the Women and Family Action Network Coalition:

A benefit cliff occurs when just a small increase in income leads to the complete termination of a benefit. The result is that parents can work and earn more, while their families end up worse off than they were before.

I noted that:

At a certain threshold, workers find themselves in a situation where the rational response to an offer of a raise or a better job is to respond, “Sorry, but I just can’t afford it.”

It’s worth noting that conservatives have lamented the cliff effect as loudly  as have liberals for the disincentive it provides for low-income individuals to get a job, work hard, and exhibit initiative.

The cliff effect is most dramatic for Medicaid health insurance coverage. While some benefits, such as food stamps and child care subsidies, as well as low-income tax credits, gradually phase out as people move up the income ladder, Medicaid is an all-or-nothing benefit. Those who are eligible receive comprehensive health insurance for little or no cost; those who make too much, or do not fit into an eligibility category (dependent child, pregnant woman, cash assistance recipient, etc.), get nothing. Children in Oklahoma are eligible for Medicaid up to 185 percent of the federal poverty level, while most parents of dependent children step off the cliff once their income approaches just 50 percent of the federal poverty level.

For low-income adults in particular, being ineligible for Medicaid in most cases means being uninsured, as those at the low end of the wage scale typically are not offered employer-based coverage and cannot afford coverage on the individual market. Hundreds of thousands of low-income adults have long been stuck in that chasm between public coverage and private insurance. In recent years, the Insure Oklahoma has partly filled the void by offering subsidized coverage to low-income employees of small businesses. Insure Oklahoma, however, has never covered more than 35,000 persons, barely a drop in the bucket compared to the nearly 565,000 Oklahomans – 85 percent of them adults – who have remained uninsured.

Addressing the cliff effect is one of the great and central promises of the health care reform law passed by Congress last month. Under the new law, all adults with income up to 133 percent of the federal poverty level would be covered by Medicaid. Individuals and families with income above the Medicaid thresholds up to 400 percent of the federal poverty level – or $43,320 for a single individual and $88,200 for a family of four – would be eligible for federal government subsidies to purchase insurance on the new state-based health insurance exchanges. The subsidies would be available on a sliding scale. According to examples provided by Kaiser Health News:

…a family of four earning 150 percent of the poverty level, or $33,075 a year, will have to pay 4 percent of its income, or $1,323, on premiums. A family with income of 400 percent of the poverty level will have to pay 9.5 percent, or $8,379. In addition, if your income is below 400 percent of the poverty level, your out-of-pocket health expenses will be limited.

There will certainly be ongoing issues  involved in the new system. Extensive outreach will be needed to get the newly-eligible signed up,  and effective coordination between Medicaid programs and the exchange will be required to make sure people don’t fall between the cracks as they transition from one program to the other.

The coverage expansions don’t take effect until January 1, 2014, which will give the state and federal governments considerable time to prepare for the challenge. When that day does arrive, however, the lamentable refrain of “sorry, I can’t afford that raise,” may finally be heard no longer.

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Eligibility for work support benefits is typically based on income, so as their earnings increase, families lose eligibility for supports. A benefit cliff occurs when just a small increase in income leads to the complete termination of a benefit. The result is that parents can work and earn more, while their families end up worse off than they were before.

The cliff effect is most dramatic for Medicaid health insurance coverage, which tends to be an all-or-nothing benefit. Children in Oklahoma are eligible for Medicaid up to 185 percent of the federal poverty level, while adults lose eligibility when they make less than 50 percent of the poverty level. Other work support programs, including the earned income tax credit, the food stamp program, and child care subsidies, minimize the cliff effect by phasing out the amount of benefits at higher incomes, or in the case of child care subsidies, requiring higher co-payments. The cumulative effect, however, is that for most low-income workers who are attempting to move up the income ladder, additional earnings can be largely or fully offset by higher taxes and the loss of benefits. At a certain threshold, workers find themselves in a situation where the rational response to an offer of a raise or a better job is to respond, “Sorry, but I just can’t afford it.”

Concern about the cliff effect has been expressed by researchers and policy experts from both the liberal and conservative ends of the ideological spectrum. The Women’s Foundation of Colorado has even filmed a video on the cliff effect, which you can watch on You Tube. At this past year’s Fall Forum of the Oklahoma Institute for Child Advocacy identified the cliff effect as one of their top advocacy priorities for the 2009 session:

The 2009 Children’s Agenda supports efforts to reduce the “cliff effect” that results in an abrupt loss of all work-support benefits when a low-income family earns a small increase in wages by increasing the income eligibility limits for child care subsidies and phasing out benefits more gradually.

OICA and others have been working with the child care division of the Oklahoma Department of Human Services to modify the income eligibility limits for subsidized care to reduce the cliff effect. This would involve raising the eligibility threshold but having higher-income recipients contribute a larger co-payment. DHS proposed new eligibility standards that they estimate would provide subsidized care for an additional 1,600 children in higher-income households (those with incomes up to roughly $29,000 for families with one child in care and $43,500 for families with multiple children in care) at a cost of $3.5 million. The proposal is still under review.

Ultimately, though, any solution to the cliff  effect must begin by filling the chasm between Medicaid eligibility and unsubsidized private insurance. There are reasons to be optimistic. The Insure Oklahoma program already offers subsidized health insurance for adults up to 200 percent of the poverty level, who are required to contribute 15 percent of the cost of the premium up to a maximum of 5 percent of family income. Efforts to expand eligibility for Insure Oklahoma up to 250 percent of poverty for adults and 300 percent for children await federal approval. However, the program currently serves only 20,000 Oklahomans and may run out of funding once it reaches 35,000 to 40,000 people.

Federal health care reform efforts may provide a more comprehensive solution. Most variations of the proposals being developed in Congress involve a “Health Insurance Exchange” that would offer subsidies for those who earn too much to qualify for Medicaid but who are not offered or cannot afford the full cost of employer-based coverage. The Senate Finance Committee recently released a paper that proposed refundable tax credits on a sliding scale for taxpayers with incomes between 100 percent and 400 percent of the federal poverty level (which would exceed $80,000 for a family of four) for those who purchase coverage on the Exchange.

If national health care reform becomes a reality with mechanisms to help low- and moderate-income families with the costs of coverage, the sad refrain of “sorry, I can’t afford that raise” may be heard far less often.

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