For some low-income families, even a small increase in income causes a drop in the public benefits they can receive, effectively increasing their expenses and hurting their ability to make ends meet. This phenomenon is often called the “benefit cliff.” Eligibility for public benefits, such as child care subsidies, housing vouchers, and food assistance, is based on income. These benefits phase out or drop off as income increases. As families earn more, they qualify for less. Most of the time, such benefits function as intended and provide important support to help families make ends meet. However, there are instances when even a $1.00 increase in annual earnings results in the loss of a benefit worth hundreds of dollars to a family.
In research released last year by The Center for Community Solutions, we found that the largest cliffs in Ohio are caused by copayments required to receive child care benefits and the loss of Medicaid health coverage, first for parents and then for children. As we described in our report, unlike many other public assistance programs, Medicaid has a hard cutoff where even $1.00 of extra annual earnings makes a family ineligible. Because they would lose the benefit completely, the largest dips in our model are caused by the loss of Medicaid coverage, first for the parent and later for the children. The chart below illustrates the benefit cliff under current law for a family of one parent and two children living in a mid-range cost county in Ohio.
Medicaid expansion under the Affordable Care Act smoothed the cliff for Ohio families by raising eligibility for Ohio parents from 90 percent of the federal poverty level (FPL) to 138 percent FPL. But what would happen to the cliff if the ACA disappeared? As shown in the chart below, if Medicaid coverage for parents reverted to pre-ACA eligibility levels in Ohio, health insurance premiums would more than swallow any additional earnings between 100 percent FPL and 130 percent FPL.
Because of the impact on the benefit cliff, eliminating Medicaid expansion could create situations for families where accepting a raise would leave them with less money in their pockets at the end of the month. As explained by Indiana Institute on Working Families: “Most often the single greatest barrier to self-sufficiency for low-income individuals is the ‘cliff effect’… The unintended consequence of this design either leads to a disincentive towards economic mobility, or leads to a situation in which the parent or guardian is working harder, but is financially worse off.”