Usually, the more money you earn, the better off you are. But for some working families, getting a raise actually makes their financial situations worse. The Center for Community Solutions conducted research, sponsored by the Office of Family Assistance, an office of the Administration for Children and Families of the U.S. Department of Health and Human Services, and recently published a report examining the benefit cliff effect in eight states. We found that workers in every state we examined faced at least one benefit cliff as they moved from minimum wage to economic independence.
Some assistance programs have hard and fast eligibility where earning just $1 too much can cause a family to lose a benefit worth hundreds of dollars in their monthly budget.
Working for low wages, even full time, doesn’t provide enough income for a family to be able to pay for basic necessities without any outside help. In fact, nearly 100,000 Ohio adults worked full-time for the full year, but still lived in poverty in 2019. The health and social services safety net includes several public benefit programs that help low-income, working families make ends meet. People living at or near poverty can get government assistance – which helps cover the costs of housing, health insurance coverage, food and child care. Resources are targeted to those most in need, and eligibility is often determined by income. Some programs, like housing subsidies, phase out gradually. But others have hard-and-fast eligibility criteria and benefit design so earning just $1 too much can cause a family to lose a benefit worth hundreds of dollars in their monthly budget. Across all eight states we examined, state child care programs and Medicaid cause some of the largest cliffs. Ohio is no exception. Below is an excerpt from the full report which describes Ohio’s benefit cliff. To see how our state compares to others and how the benefit cliffs line up with the health care career pathway, visit https://www.acf.hhs.gov/ofa/news/navigating-benefits-cliffs-in-hpog to see the full report or download the PDF at the bottom of this page.
Working for low wages, even full time, doesn’t provide enough income for a family to be able to pay for basic necessities without any outside help
Ohio
Ohio is one of a few states where there is widespread collection of local income taxes. In 2019, Ohio had 848 local income tax jurisdictions, second only to Pennsylvania. In comparison, 33 states have no local income taxes.[1] Local income taxes are almost universal in Ohio and vary between 0.5 percent and 3.0 percent of gross income. This analysis uses the most common local income tax rate of 2.0 percent.[2]
It is not until the parent is earning nearly $27 per hour that the family is better off financially than it was before hitting these cliffs at $21 per hour
At the minimum wage of $8.70 per hour, an Ohio family must pay $30 in local income taxes per month. This expense contributes to the Ohio family being unable to make ends meet working full time at minimum wage, even with assistance covering the entire cost of child care and health coverage and a portion of food and housing costs.
Unlike several other states, Ohio’s child care program has been designed to address benefits cliffs. To qualify for subsidized child care, new applicants must have gross monthly income below 130 percent of FPL or $28,236 annually for a family of three. But as income increases, Ohio allows families to continue to receive child care up to 300 percent of FPL.[3] This continuing child care is not time limited. Like other states, the copayment paid by families increases as income rises. At higher incomes, the copayment grows so quickly that it essentially causes a plateau—the family earns more but is no better off.
At $11 per hour, the family’s income rises above 105 percent of FPL, and it must begin to make a copayment for child care. This expense, combined with a rising share of rent under the family’s HUD assistance and a decline in its amount of SNAP benefits, causes a small cliff, but the family quickly recovers. By $13 per hour, the family is earning enough to cover the basic budget, thanks in part to the assistance it continues to receive. Between $13 and $14 per hour, it hits a plateau where the entire raise is needed to make up for the decrease in housing subsidy, child care subsidy, and SNAP benefits. When the income rises above 138 percent of FPL, the parent is no longer eligible for Medicaid and must pay for the employer-sponsored health insurance coverage, a cost of $136 per month. The family briefly falls behind again and cannot make ends meet until it receives another raise.
Higher paid LVNs and LPNs in Ohio may be worse off financially than those earning less because of benefits cliffs relating to CHIP and child care.
After this point, the family is receiving Medicaid coverage for the children and continues participation in the child care subsidy program. The final cliff happens between $21 and $22 per hour. Once the family’s income passes 211 percent of FPL, the child care copayment jumps from $334 to $428 and the children lose Medicaid health coverage, so the family must absorb the full cost of the premium for employer- sponsored family coverage, which is $418. These two changes happening simultaneously erase any financial gain from the raise. Between 200 percent and 300 percent of FPL, the child care copayment increases rapidly. Nearly all of the extra money earned from raises is needed to pay for the family’s increased child care costs. When the family no longer receives a subsidy for child care, the copayment that it has been paying is so great that it does not encounter a cliff. In fact, a family that loses child care in Ohio because its income is too large has to make up a difference between its copayment and the market rate of only $81 per month. The family’s growing earnings are more than able to cover this modest increase.
It is not until the parent is earning nearly $27 per hour that the family is better off financially than it was before hitting these cliffs at $21 per hour. After this point, the family is no longer receiving any public benefits, so it does not encounter any more cliffs.
Where the median wages for health care occupations fall on the Benefits Cliffs Model is concerning for Ohio. The median hourly wage for home health aides aligns with the small benefits cliff when child care copayment begins. Nursing assistants earning the median hourly wage are on the cusp of earning too much to be eligible for SNAP and Medicaid. Finally, higher paid LVNs and LPNs in Ohio may be worse off financially than those earning less because of benefits cliffs relating to CHIP and child care.
[1] Tax Foundation. (2019). Local Income Taxes in 2019. Retrieved from https://taxfoundation.org/local-income-taxes-2019/.
[2] Ohio Department of Taxation. (n.d.). Municipal Income Tax Rate Database Table. Retrieved from https://thefinder.tax.ohio.gov/StreamlineSalesTaxWeb/Download/MuniRateTableInstructions.aspx.
[3] Ohio Department of Job and Family Services. (2019). Child Care Manual Procedure Letter No. 130. Retrieved from https://emanuals.jfs.ohio.gov/ChildCare/ChildCareManual/CCMPL/CCMPL-130.stm.