Health Care Reform (1): Coverage expansion can turn steep cliffs into gentle dips

This is the first of what will be an ongoing series of posts looking at the impact of the new federal health care reform law on Oklahoma and Oklahomans. For full information on health care reform, the Henry J. Kaiser Family Foundation website is excellent. We encourage your contributions as comments or as  a guest blog.

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.