How to Get a Medicaid Work Requirement? Bundle It with Paul Ryan’s Opportunity Grants

A similar version of this Health Alert appeared at Forbes.

Utah Governor Gary Herbert and North Carolina Governor Pat McCrory have asked President Obama to allow them to include work requirements in their Medicaid programs. Work requirements were critical to the success of welfare reform in 1996 and would also change Medicaid from a dependency-trap to a true safety net. The best way to achieve it would be through legislation, not relying on executive action.

A new study I’ve written for the National Center for Policy Analysis explains how including Medicaid and the State Children’s Health Insurance Program (CHIP) as part of safety-net reform, instead of keeping health care in its own silo, would greatly improve the federal welfare state for both recipients and taxpayers. Fortunately, House Ways and Means Committee Chairman Paul Ryan (R-Wis.) has proposed reforms to the federal safety net that could include Medicaid and CHIP.

Mr. Ryan’s proposal, Expanding Opportunity in America, focuses on the Earned Income Tax Credit (EITC), housing and home-energy assistance, education assistance, food stamps (SNAP) and criminal sentencing reform. Ryan’s proposal hinges on the Opportunity Grant (OG). States would apply for OGs that would roll some or all of the federal spending on individuals and families in poverty into one lump sum for distribution to the states. States, civil society organizations and recipients themselves would all be responsible for transitioning recipients out of dependency and into self-reliance.

Ryan is looking back to the success of the 1996 welfare reform signed by a reluctant President Clinton after a successful campaign by House Speaker Newt Gingrich. Ten years after the reform, it was widely recognized as a significant success, even by the mainstream media. Medicaid, unfortunately, was never reformed in 1996.

There are very good reasons to reform all of these safety-net programs comprehensively, in one fell swoop.

First, federal spending on Medicaid and CHIP amounted to $274 billion in 2013. Other safety-net programs added up to $398 billion. Thus, Medicaid and CHIP amount to over 41 percent of all safety-net spending

Second, one of the major problems with the federal safety net is that it traps people in poverty due to income tax “cliffs.” That is, when low-income people increase their incomes beyond cut-offs, they lose benefits. This imposes extremely high effective marginal tax rates, dissuading people from increasing their incomes.

The current welfare state imposes a very high marginal-income tax rate at an income between about $20,000 and $30,000, largely due to the complete elimination of Medicaid benefits in this income range. A reform that doesn’t tackle this entire mess is unlikely to succeed at improving individuals’ incentives to escape poverty.

Third, excluding Medicaid from the proposal does not allow states and local authorities to take into account the social determinants of health. Most scholars believe that the health care “system” accounts for maybe one-fourth, and likely not more than one-half, of a person’s health status. Factors like unemployment or family life independently affect health. Ryan’s Opportunity Grant (OG) proposal recognizes this in other contexts.

Fourth, bringing Medicaid into an OG program would dramatically improve politicians’ and bureaucrats’ incentives. Currently, official statistics count Medicaid recipients among the insured, just like people who buy their own insurance or get it as an employer-based benefit. So, politicians can always increase the number of insured by expanding Medicaid. Ryan’s proposal would reward politicians and bureaucrats based on measurements that include “the number or percentage of people who find work” and “the number or percentage of people who get off assistance.” It is long past time to offer the same goals to Medicaid dependents.

Imagine a civic organization like Catholic Charities (which Ryan promotes) partnering with a Medicaid MCO to provide housing that improved health outcomes. Combining housing and health benefits would succeed, given the right incentives. A study conducted in Cincinnati from 2009 through 2012 concluded that housing code violations (for instance, mold or cockroaches) explained 22 percent of the variation in rates of visits to emergency departments for children with asthma, and children hospitalized for asthma were 84 percent more likely to revisit an emergency department or be re-admitted if they lived in census tracts with high violation rates.

Bundling Medicaid alongside other safety-net funding into Opportunity Grants would unleash civic entrepreneurship at the local level that would improve dependents’ lives and health, while reducing the burden on taxpayers.

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