Topic: Health Care & Welfare

New Study Finds More Evidence of Poverty Traps in the Welfare System

A new study from the Illinois Policy Institute analyzes the welfare benefits package available at different levels of earnings in that state. The authors find that low-income workers have limited economic incentive to increase their earnings from the minimum wage, and at some higher levels of earnings these workers actually see a reduction in net income. America’s complex welfare system can too often create these perverse situations where beneficiaries are financially worse off as they increase work effort and earned income. In these poverty traps, lost benefits and increased taxes outweigh any additional earnings, making it harder for beneficiaries to escape from poverty and reach the middle class

Author Erik Randolph finds that a single mother with two children who increases her hourly earnings from the Illinois minimum wage of $8.25 to $12 only sees her net income increase by less than $400. For many low-income workers striving to climb the ladder of prosperity, our welfare system takes away almost all of their incentive to move up from an entry-level job as they do not get to realize almost any of these gains. Even worse, someone in this scenario who works hard and increases her earnings all the way to $18 an hour, a wage level which would place her in the middle class, would actually see her net income decrease by more than $24,800 due to benefit reductions and tax increases. Instead of making it easier for beneficiaries to become independent and achieve a level of prosperity, the welfare system traps them into low levels of earnings. This parent would have to increase her earnings all the way to $38 an hour in order to replace the lost benefits and achieve the same standard of living.

These findings echo some of the insights from our Work versus Welfare Trade-off paper, in which we compared the benefits available to a similar family in each state to the equivalent wage that family would have to earn to obtain the same level of net income. Our study found that the high level of benefits available combined with benefit cliffs created situations that would deter work. In 34 states, the parent would have to earn well above the minimum wage to achieve the same standard of living she had when not working.

This new report from the Illinois Policy Institute illustrates some of the biggest problems with our current welfare system and corroborates many of the findings of our past work. Work versus Welfare looked at two situations, one where the parent worked and one where she had no earned income. This new study from the Illinois Policy Institute provides valuable additional insight, as it looks at this tradeoff at different levels of earned income to analyze the poverty traps in place as beneficiaries move to higher levels of earned income. Instead of encouraging work, the current welfare system often takes away much of the incentive for low-income workers to increase work effort and earnings. As Randolph puts it, “[r]ather than providing a hand up, Illinois’ welfare system can become a trap,” and this is unfortunately the case throughout the country. This study shows yet another reason why our welfare system needs fundamental reform.  

Cato will host a conference in New York January 29th to further explore poverty and the welfare system. The conference agenda and registration information can be found here

Obamacare and the Rule of Law

This spring, the Affordable Care Act will make its third trip to the Supreme Court. But King v. Burwell is different from its predecessors. Instead of challenging Obamacare’s constitutionality, or the way certain regulations burden particular types of plaintiffs, this lawsuit questions how the executive branch has enforced the law generally—or, more precisely, modified, delayed, and suspended it.

After supporting the challengers’ successful request that the Supreme Court take up this case, the Cato Institute has now joined with Professor Josh Blackman on an amicus brief that alerts the Court to the separation-of-powers and rule-of-law violations attending the ACA’s implementation. Through a series of memoranda, regulations, and even blog posts, President Obama has disregarded statutory text, ignored legislative history, and remade the law in his own image.

King focuses on tax credits—the subsidies that allow people to pay increased premiums—one of the key pillars of Obamacare that the administration has toppled. To assist those who lack employer-sponsored insurance, and because it couldn’t command states to establish exchanges, Congress authorized these credits for residents of states that do create the exchanges. The statute expresses this design in language that is clear as day: Individuals receive tax credits if they bought a qualifying health plan “through an Exchange established by the State.”

In other words, if a state failed to establish an exchange, its residents—who would end up buying plans through the federal HealthCare.gov—would not be eligible for the subsidies. (The ACA’s Medicaid expansion plan operated with a similar carrot-and-stick approach until the Supreme Court rewrote it.)

But a funny thing happened on the way to utopia: only 14 states set up exchanges, meaning that the text of the law denied subsidies in nearly three-quarters of states. This result was untenable to an administration intent on pain-free implementation. To obviate the uncomfortable compromises Congress reached, the executive engaged in its own lawmaking process, issuing a regulation that nullifies the relevant ACA provision.

Medicaid’s Access to Care Problems Persist and Will Get Worse Next Year

Last week, Republican Governor Bill Haslam announced a plan to expand Medicaid in Tennessee. Republican governors in Wyoming and Utah have also put forward expansion plans in the past month. A recent Washington Post editorial argued that there is “no rational justification” for refusing to expand Medicaid.

Despite this claim there are many reasons to be wary of Medicaid expansion even as some Republican governors signal some measure of support. A recent government report found that many Medicaid patients have access to care problems, including difficulty getting an appointment to see a doctor and lengthy wait times. Due to a looming reduction in the rates Medicaid pays some doctors, access to medical care for Medicaid enrollees is likely to get worse next year.

In the report from the HHS Office of Inspector General, researchers posed as Medicaid patients and called managed care providers. They found that 51 percent of listed providers could not schedule an appointment. Some providers could not be found at the location listed, some were found but were not participating in the plan, while others were no longer taking new Medicaid patients.

Even those few who were able to get appointments faced lengthy average wait times. At 28 percent of providers offering appointments, enrollees had to wait longer than a month. At 10 percent, the wait exceeded two months. Many states have requirements that wait times must be shorter than a month, so the fact that so many would have to wait longer than that “raises further questions about enrollees’ ability to obtain timely access to care.”

Senate Leaders Demand Treasury, HHS Inform Consumers About Risks Of HealthCare.gov Coverage

The Obama administration is boasting that 2.5 million Americans have selected health insurance plans for 2015 through the Exchanges it operates in 36 states under the Patient Protection and Affordable Care Act, and that they are well on their way to enrolling 9.1 million Americans in Exchange coverage next year. But there’s a problem. The administration is not warning ObamaCare enrollees about significant risks associated with their coverage. By mid-2015, 5 million HealthCare.gov enrollees could see their tax liabilities increase by thousands of dollars. Their premiums could increase by 300 percent or more. Their health plans could be cancelled without any replacement plans available. Today, the U.S. Senate leadership – incoming Majority Leader Mitch McConnell (R-KY), Majority Whip John Cornyn (R-TX), Conference Chairman John Thune (R-SD), Policy Committee Chairman John Barrasso (R-WY), and Conference Vice Chairman Roy Blunt (R-MO) – wrote Treasury Secretary Jacob J. Lew and Health and Human Services Secretary Sylvia M. Burwell to demand the administration inform consumers about those risks.

First, some background.

  • The PPACA directs states to establish health-insurance Exchanges and requires the federal government to establish Exchanges in states that fail to do so.
  • The statute authorizes subsidies (nominally, “tax credits”) to certain taxpayers who purchase Exchange coverage. Those subsidies transfer much of the cost of ObamaCare’s many regulations and  mandates from the premium payer to the taxpayer. For the average recipient, Exchange subsidies cover 76 percent of their premium.
  • But there’s a catch. The law only authorizes those subsidies “through an Exchange established by the State.” The PPACA nowhere authorizes subsidies through federally established Exchanges. This makes the law’s Exchanges operate like its Medicaid expansion: if states cooperate with implementation, their residents get subsidies; if not, their residents get no subsidies.
  • Confounding expectations, 36 states refused or otherwise failed to establish Exchanges. This should have meant that Exchange subsidies would not be available in two-thirds of the country, and that many more Americans would face the full cost of the PPACA’s very expensive coverage.
  • Yet the Obama administration unilaterally decided to offer Exchange subsidies through federal Exchanges despite the lack of any statutory authorization. Because those (illegal) subsidies trigger (illegal) penalties against both individuals and employers under the PPACA’s mandates, the administration soon found itself in court.
  • Two federal courts have found the subsidies the administration is issuing to 5 million enrollees through HealthCare.gov are illegal. The Supreme Court has agreed to resolve the issue. It has granted certiorari in King v. Burwell. Oral arguments will likely occur in February or March, with a ruling due by June.
  • If the Supreme Court agrees with those lower courts that the subsidies the administration is issuing through HealthCare.gov are illegal, the repercussions for enrollees could be significant. Their subsidies would disappear. The PPACA would require them to repay the IRS whatever subsidies they already received in 2015 and 2014, which could top $10,000 for many enrollees near the poverty level. Their insurance payments would quadruple, on average. Households near the poverty level would see even larger increases. Their plans could be cancelled, and they may not be able to find replacement coverage.
  • The Obama administration knows it is exposing HealthCare.gov enrollees to these risks. But it is not telling them.

The Hobbylobbification of America

If you ask reasonably informed consumers of news media what the year’s big Supreme Court case was, most would probably say Burwell v. Hobby Lobby, that case where “five white men” (in Harry Reid’s description) decided that corporations can deny women access to birth control. But, as I’ve said elsewhere, what was at stake in Hobby Lobby has nothing to do with the power of big business, the freedom to use any kind of legal contraceptive, or how to balance religious liberty against other constitutional considerations. Much like Citizens United (which struck down restrictions on corporate political speech without touching campaign contribution limits) and Shelby County (which struck down Section 4(b) of the Voting Rights Act because it was based on obsolete voting data that didn’t reflect current realities as constitutionally required), Hobby Lobby is doomed to be misunderstood.

The case was actually a rather straightforward question of statutory interpretation regarding whether the government was justified in this particular case in overriding religious liberties. The Supreme Court evaluated that question and ruled 5-4 that closely held corporations can’t be forced to pay for all of their employees’ contraceptives if doing so would violate their religious beliefs. There was no constitutional decision, no expansion of corporate rights, and no weighing of religion versus the right to use birth control.

That’s it. Nobody has been denied access to contraceptives and there’s now more freedom for all Americans to live their lives how they want, without checking their conscience at the office door. The contraceptive mandate fell because it was a rights-busting government compulsion that lacked sufficient justification.

That the Hobby Lobby dissenters and their media chorus made so much noise over this case is evidence of a larger process whereby the government foments needless social clashes by expanding its control over areas of life we used to think of as being “public” yet not governmental. The government thus uses private voluntary institutions as agents in its social-engineering project. These are places that are beyond the intimacies of the home but still far removed from the state: churches, charities, social clubs, small businesses, and even “public” corporations (which are nevertheless part of the “private” sector).

Where Alexis de Tocqueville celebrated the civil society that proliferated in the young American republic, the Age of Obama has heralded an ever-growing administrative state that aims to standardize “the Life of Julia” from cradle to grave. Through an ever-growing list of mandates, regulations, and assorted other devices, the government is pushing aside the “little platoons” that made this country what it was. We can call this tide of national collectivism overtaking the presumptive primacy of individual liberty and voluntarism the “Hobbylobbification of America.”

For more on all this, read my recently published book – Religious Liberties for Corporations? Hobby Lobby, the Affordable Care Act, and the Constitution – where my co-author David Gans and I debate all sorts of interesting issues. Perhaps most curious is that I minimize the significance of the ruling or its precedential value, while David says it’s really, really big (and really, really bad). That’s an unusual inversion in Supreme Court commentary; typically the winning side trumpets its victory while the losers try to explain why the decision really doesn’t mean that much. (If you’re curious about any of this, come to our book forum/debate this Tuesday, or watch online.)

New Study Finds Minimum Wage Increases Hurt Low-Skilled Workers

A new working paper from the National Bureau of Economic Research finds that significant minimum wage increases can hurt the very people they are intended to help. Authors Jeffrey Clemens and Michael Wither find that significant minimum wage increases can negatively affect employment, average income, and the economic mobility of low-skilled workers. The authors find that significant “minimum wage increases reduced the employment, average income, and income growth of low-skilled workers over short and medium-run time horizons.”  Most troublingly, these low-skilled workers saw “significant declines in economic mobility,” as these workers were 5 percentage points less likely to reach lower middle-class earnings in the medium-term. The authors provide a possible explanation: the minimum wage increases reduced these workers’ “short-run access to opportunities for accumulating experience and developing skills.” Many of the people affected by minimum wage increases are on one of the first rungs of the economic ladder, low on marketable skills and experience. Working in these entry level jobs will eventually allow them to move up the economic ladder. By making it harder for these low-skilled workers to get on the first rung of the ladder, minimum wage increases could actually lower their chances of reaching the middle class.

Most of the debate over a minimum wage increase centers on the effects of an increase on aggregate employment, or the total number of jobs and hours worked that would be lost. A consensus remains elusive, but the Congressional Budget Office recently weighed in, estimating that a three year phase in of a $10.10 federal minimum wage option would reduce total employment by about 500,000 workers by the time it was fully implemented. Taken with the findings of the Clemens and Wither study, not only can minimum wage increases have negative effects for the economy as a whole, they can also harm the economic prospects of  low-skilled workers at the individual level.

Four states approved minimum wage increases through ballot initiatives in the recent midterm, and the Obama administration has proposed a significant increase at the federal level. This study should give them a reason to reconsider.

Recent Cato work on this topic can be found here and here

Early Childhood Summit Don’t Lie?

When I first heard about the White House Summit on Early Education being held today, I worried. “I sure hope this isn’t going to be a PR stunt to cheerlead for government pre-kindergarten programs,” I thought. Then I got the announcement: U.S. Secretary of Education Arne Duncan will be having a Twitter chat with pop sensation Shakira in conjunction with the summit! “Oh, I was just being silly,” I said to myself, relieved that this would be a sober, objective discussion about what we do – and do not – know about the effectiveness of pre-K programs.

Okay, that’s not actually what happened. In fairness to Shakira, she does appear to have a very serious interest in children’s well-being. Unfortunately, the White House does not appear to want to have an objective discussion of early childhood education.

Just look at this, from the official White House blog:

For every dollar we invest in early childhood education, we see a rate of return of $7 or more through a reduced need for spending on other services, such as remedial education, grade repetition, and special education, as well as increased productivity and earnings for these kids as adults.

Early education is one of the best investments our country can make. Participation in high-quality early learning programs—like Head Start, public and private pre-K, and childcare—provide children from all backgrounds with a strong start and a solid foundation for success in school.

Let me count the ways that this is deceptive, or just plain wrong, as largely documented in David Armor’s recent Policy Analysis The Evidence on Universal Preschool:

  • The 7-to-1 ROI figure – for which the White House cites no source – almost certainly comes from work done by James Heckman looking at the rate of return for the Perry Preschool program. It may well be accurate, but Perry was a microscopic, hyperintensive program from the 1960s that cannot be generalized to any modern, large-scale program.
  • If you look at the longitudinal, “gold-standard” research results for Head Start, you see that the modest advantages accrued early on essentially disappear by first grade…as if Head Start never happened. And federal studies released by the Obama administration are what report this.
  • It stretches credulity to call Head Start “high quality,” not just based on its results, but on its long history of waste and paralysis. Throughout the 2000s the federal Government Accountability Office and general media reported on huge waste and failure in the program.
  • Most evaluations of state-level pre-K programs do not randomly assign children to pre-K and compare outcomes with those not chosen, the “gold standard” mentioned above. Instead they often use “regression discontinuity design” which suffers from several shortcomings, arguably the biggest of which is that you can’t do longitudinal comparisons. In other words, you can’t detect the “fade out” that seems to plague early childhood education programs and render them essentially worthless. One large-scale state program that was evaluated using random-assignment – Tennessee’s – appears to be ineffective.
  • The White House says early childhood programs can help “children from all backgrounds.” Not only is that not true if benefits fade to nothing, but a federal, random-assignment evaluation of the Early Head Start program found that it had negative effects on the most at-risk children.

I suspect the vast majority of people behind expanding preschool are well intentioned, and I encourage them to leverage as much private and philanthropic funding as they can to explore different approaches to pre-K and see what might work. But a splashy event intended to proclaim something is true for which we just don’t have good evidence doesn’t help anyone.

Let’s not mislead taxpayers…or kids.