Incentives matter: the case of Medicaid

A critical challenge in designing income maintenance programs is the tradeoff between benefit generosity and the incentive to work.  In a recent WP column, Catherine Rampell compares work incentives in the states where Medicaid has expanded under Obamacare to the states (including North Carolina) which have kept the pre-Obamacare system.  In the 19 states that have rejected the Medicaid expansion under Obamacare, if a working parent earns more than 61% of the poverty line ($12,300 for a family of three), then that household loses ALL of their Medicaid benefits.

Rampell suggests that a sliding scale be used instead, so that as the parent starts earning more than $12.3k, the family loses a fraction of their Medicaid benefits as opposed to the whole amount.  The current practice in effect penalizes work effort that generates more that $12.3k, locking millions of households into poverty.

Now there is a catch -- a sliding scale means that more families become eligible for Medicaid.  Benefits might not be entirely phased out until the parent earns $25k or more.  But as more parents work more hours, extra revenue gets generated because (1) their families rely less on Medicaid and other income maintenance programs and (2) they pay more income and payroll taxes.

I expect this to be a big issue in the NC gubernatorial contest this year.  Gov. McCrory famously turned down federal funds that would have provided significant increases in health care for poor North Carolina families.  They have a big incentive to remember that on Nov. 8.