Medicaid and the Poverty Trap

Over the next couple of weeks, the Ducey administration will be hosting public forums across the state to share information about its proposed “1115 waiver” for the state’s Medicaid program. 

The waiver provisions, if approved in Washington, would apply time limits, require premiums and co-payments, and impose work requirements to able-bodied adults who do not have young children. This is, essentially, the population that is covered by the Affordable Care Act’s (ACA) Medicaid expansion.

While critics are painting this effort as a threat to low-income adults on Medicaid, they are ignoring how the program can actually undermine individual self-sufficiency. The Ducey administration’s proposal is an important step to ensure that the program for able-bodied, low-income adults is a hand up ─ not a trap.

Arizona’s Medicaid program is operated and funded jointly by the federal government and the state. Its original purpose was to provide healthcare services to the poor and disadvantaged, but today’s program goes far beyond that. Of the 1.6 million Arizonans currently enrolled in the program, about one-fifth are able-bodied adults above the poverty level.

At present, individuals lose 100 percent of their Medicaid benefits once their incomes rise above the income eligibility threshold (138 percent of poverty). In other words, if they earn 139 percent of poverty, they lose all Medicaid benefits.

This creates a “welfare cliff” which discourages individuals from seeking additional work and/or earnings. Instead of acting as a safety net, the program can turn into a poverty trap.

The current proposal provides assistance for those transitioning to private coverage, where Medicaid recipients are able to keep their monthly premium contributions when they transition out of the program. Those accumulated health savings can then be used to pay for care of their own choosing and best meets their individual needs and preferences, including private health insurance premiums, deductibles and co-pays.

This waiver proposal shines a bright light on why the Medicaid expansion is, in some cases, counter-productive. That is why this proposal is an important step in ensuring that precious resources are directed to the truly needy, operating as a temporary safety net for able-bodied adults. As Arizonans discuss the Governor’s proposal that will be submitted to Washington for approval, is also helpful because it shows that a more flexible approach could better meet vulnerable Arizonans’ health care needs while respecting taxpayers.