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. Read the rest of this entry »

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.”

Read the rest of this entry »