When It Comes to Poor Adults, Rep Ryan is Very Wrong About an ACA “Poverty Trap”

February 5th, 2014 at 9:24 pm

During a hearing today on the latest CBO report, Rep. Paul Ryan declared the health care law to be “a poverty trap.”  He’s way off base.  In fact, he’s got it backwards.

Rep. Ryan was riffing off of the estimates in the new CBO study predicting that some people—the equivalent of 2.5 million full-timers by 2024—will choose to work less to avoid having the ACA subsidy reduced as their earnings rise.

The facts, as shown in this Kaiser Family Foundation fact sheet (see table 3), are that in states that accepted the ACA Medicaid expansion, poor adults can earn far more than they could before the new law and still maintain their Medicaid eligibility.  The median income cutoff for the 26 states that accepted the expansion is 138% of poverty.  For the states that did not, that cutoff is 47% of the poverty line for parents and 0% (!) for childless adults.  (To be fair to the Congressman, I should note that the WI cutoff is 100% of poverty; then again, to be fair to the poor, I should note that Ryan wants to block grant Medicaid, cutting by a third over the next decade.)

If the earnings of a single parent with two kids in Texas, where the eligibility threshold is 19%, goes above $3,600, that parent loses Medicaid (their kids remain covered).  That’s a bit more than three months of full-time work at the minimum wage.  Now that, Mr. Ryan, is a poverty trap.

If that family relocated to one of the 26 states implementing the ACA expansion, the parent would face an income cutoff of about $26,000.  Above that, if she’s not insured through work, she would be eligible for subsidies in the exchanges.

None of this is to deny the CBO’s point that some people with incomes above the poverty level will choose to work less to avoid reductions in their premium subsidy.  But those choices are not the ones faced by the poor who live in states where the ACA is the law of the land.  In those states, the law has thoroughly reversed the poverty trap.  Rep. Ryan should know that and correct the misimpression he’s created.

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7 comments in reply to "When It Comes to Poor Adults, Rep Ryan is Very Wrong About an ACA “Poverty Trap”"

  1. Mueller says:

    Very good up to a point. What you fail to mention is the burdensome tax on the rest of the population that has to fund the poor. So. Yes the ACA drives more people into poverty just to be insured. The previous system was screwed up, but at least it was my choice whether or not I wanted to be involved in that system.
    Again. How does limiting choice provide benefits to the market?


    • Larry Signor says:

      1. Poverty is a semi-hidden tax on our economy. Fixing it will reduce this implicit loss.
      1a. “fund the poor”?. We do very little of this in the US, to our detriment politically and economically. “fund the poor”?
      2. The ACA explicitly allows for expanded earnings and healthcare subsidies. Expanded earnings and reduced costs does not drive anyone into poverty (or bankruptcy. See TARP).
      3. There was no “previous system”. There were expensive, capricious and abusive health care policies available at usurious prices.
      4. If you were not participating in the previous health insurance “market”, and were not extremely wealthy, the taxpayers paid for your less than adequate outcomes. Now that’s “a burdensome tax”.
      5. Limiting choice was the business model of the previous insurance scheme in the US. This was done primarily through the price channel and the pre-existing condition exemption for enrollment. The ACA addresses both of these problems, thus enhancing choice.

      Some light reading for you (and Paul Ryan):

      http://www.cbo.gov/sites/default/files/cbofiles/attachments/45010-Outlook2014.pdf


  2. Tom says:

    Anyone who is getting close to losing the subsidy, might also start being in a position to sock some money away in an IRA which would reduce their subsidy calculated income. Is saving in an IRA a bad thing? I say no.


  3. PeonInChief says:

    This shouldn’t be news to anyone. I think i pointed out quite some time ago that people just above 400% of poverty, particularly older people, should consider working fewer hours to bring their income into subsidy range. Is this so bad? Think of the number of older people who want to semi-retire, but couldn’t do so because they’d lose their health benefits. Now they can, improving their quality of life, and freeing up a job for a younger person. Yay!

    And while we could talk about the evils of subsidies, I’d like to limit the discussion to cumulative subsidies that exceed the sum we’ve spent bailing out the banks to date.


  4. Jill SH says:

    Mueller, about that system that you may choose not to be involved in:

    1. Those poor — the working poor, previous without health insurance, now eligible for Medicaid expansion — are probably paying payroll/FICA taxes (from their first dollar) that helps pay for the health care of the elderly, the very poor, and the disabled. If they are paying any other taxes, either directly or indirectly, such as gas tax, sales tax, or property tax, they are contributing to the health insurance of a lot of public employees at state and municipal levels. The real travesty in all this is that they haven’t had access to health coverage at all.

    2. The costs of the uninsured (many of those same working poor) who do get (ER) health care for which they are unable to pay shift to all other (insured) payers. Some of that uncompensated care is covered by federal or other grants, most notably DISH funds (disproportionate share compensation to providers), which are slated to expire over the next few years as ACA matures and most people are covered by insurance or Medicaid.

    3. With the ACA, many who were uninsured — who had been priced out of the market for even bare-bones, high deductible, or inadequate policies — are now able to pay SOMETHING toward their health own insurance. The subsidies activate more money coming into the health insurance system in total, something I think tends to get overlooked. I had a time when I could not afford health insurance (I’m self-employed); the premium was something like $450, bu I could have only paid $200 per month. If I’d had any kind of health crisis that $200/month would have been a drop in the bucket to cover expenses, and/or I would have faced bankruptcy. I was fine, but the health insurance system missed out on the revenue I could have provided, and which would have helped keep premiums down overall.
    The subsidy system actually means many more people are putting in funding for their own insurance, and I think this can count at new money into the insurance system. Jared, is this about right?


  5. Geoffrey VandenBout says:

    Is it fair to directly connect reduced working hours to the subsidies? No doubt they play a significant role, but can’t we assume that other factors, like health insurance being available when it wasn’t before, could also be the primary factor?


  6. Bob Zonis says:

    Mueller,

    What part of “Untreated sick people put all the rest of us at risk of catching their disease” are you having trouble understanding?

    On top of that, sick people who stay home and don’t get paid cost their employers (and our government) a bunch of money in lost productivity (and lost taxes).

    Lastly, sick people who don’t see doctors until they’re sick enough to go to the emergency room wind up costing two to three times what it would have cost in medical fees if they’d gotten timely care. And guess who pays those inflated ER bills? We all do.

    So, while I understand that you don’t want any of “those people” to get any benefit from your tax dollars, you are selfishly asking all the rest of us to pay more to support your racism. Not a very compelling argument.


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