Medicaid Should Be Included in Paul Ryan’s Anti-Poverty Proposal

by John R. Graham NCPA July 30, 2014

Congressman Paul Ryan has introduced a proposal, Expanding Opportunity in America, to bring together different federal anti-poverty programs into one. Ryan focuses on the Earned Income Tax Credit, housing and home-energy assistance, education assistance, food stamps (SNAP), and criminal sentencing reform.

Ryan’s proposal hinges on the Opportunity Grant (OG). States would apply for OGs that would roll some or all of this federal money into one lump sum. However, it would not just be turned over to states as a block grant. States, civil-society organizations, and recipients themselves would all be responsible for measuring and achieving outcomes. The OG would have one overriding goal: To facilitate recipients moving out of dependency and into self-reliance.

Ryan is looking back to the success of the 1996 welfare reform, signed by a reluctant President Clinton after a successful campaign by House Speaker Newt Gingrich. Ten years after the reform, it was widely recognized as a significant success. (In 2012, President Obama gutted much of the reform through executive action.)

At a recent briefing at the American Enterprise Institute, Ron Haskins of the Brookings Institution pointed out that this proposal should have bipartisan appeal, and if it got to President Obama’s desk he would likely sign it. This explains the appeal of Ryan’s proposals. He doesn’t just throw out wide-eyed ideas designed to attract media attention. He develops them and modifies them until they get enough support from his colleagues that a pathway to success can be identified.

This is what happened to his Medicare reform proposal. The initial version, contained in his Roadmap, proved bait for demagoguery. President Obama accused him of wanting to give seniors “some kind of voucher,” insinuating that it would be about as valuable as a supermarket coupon. Most Republican colleagues were terrified of having to vote for this. Nevertheless, after some watering down, Ryan put it in his budget and convinced his colleagues to vote for it.

Ryan’s Medicare proposal shows that he understands health care. His new anti-poverty plan would benefit greatly from including Medicaid and the Children’s Health Insurance Plan (CHIP).

According to the left-leaning Center on Budget and Policy Priorities (CBPP), federal spending on Medicaid and CHIP amounted to $274 billion in 2013. Safety-net programs, including the EITC, Child Tax Credit, SNAP, housing assistance, assistance in paying home-energy bills, and other supports, added up to $398 billion. So, Medicaid and CHIP amount to over 41 percent of all safety net spending. And that was before the Medicaid expansion embedded in Obamacare, which launched in 2014 and aims to make millions more dependent on the federal government on health care.

There are a number of reasons why Ryan’s proposal would be more likely to succeed at raising people out of poverty if it included Medicaid and CHIP.

First, one of the major problems with the federal safety net is that it traps people in poverty due to income-tax “cliffs”. That is, when low-income people increase their incomes beyond cut-offs, they lose benefits. This imposes extremely high marginal-income tax rates, dissuading people from increasing their incomes.

Ryan’s Figure 3 clearly shows that there is a very high marginal-income tax rate imposed at an income between about $20,000 and $30,000. His Figure 2 shows that this is largely due to the complete elimination of Medicaid benefits. Any attempt to eliminate this poverty trap that ignores Medicaid is likely to fail.

Second, excluding Medicaid from the proposal does not allow states to take into account the social determinants of health. Most scholars believe that the healthcare “system” accounts for maybe one quarter, and likely not more than one half, of a person’s health status. Things like unemployment or family life are independent factors. Ryan’s proposal recognizes this in other contexts:

The OG program will also be more responsive to different needs. For example, it makes little sense to provide a household with a consistent stream of SNAP benefits when what the household may need most is reliable transportation to and from work. Giving providers this kind of flexibility will allow them to intervene early on with targeted benefits in cases where short-term assistance can prevent someone from falling into deeper poverty.

That is well and good. However, what about providing transportation to and from medical appointments, too? Bundling Medicaid into an OG would give rise to creative opportunities to keep people healthy.

Third, bringing Medicaid into an OG program would dramatically improve politicians’ and bureaucrats’ incentives. Currently, every incentive drives them to increase dependency on Medicaid. Indeed, official statistics count Medicaid recipients among the insured, just like people who buy their own insurance or get it as an employer-based benefit. So, politicians can always increase the number of insured by expanding Medicaid. Current statistics barely recognize Medicaid as welfare. Ryan’s proposal would reward politicians and bureaucrats based on measurements that include “the number or percentage of people who find work” and “the number or percentage of people who get off assistance.”

Ryan’s Expanding Opportunity would be a great step forward for the federal safety net. Including Medicaid would dramatically improve its likelihood of success at freeing people to lift themselves out of poverty.

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