Tuesday, February 02, 2021

Raised minimum wage creates an imperative to improve ACA marketplace subsidies at low incomes

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David Dayen flags a paper by UC-Berkeley economist Michael Reich that finds a budget impact from raising the minimum wage (which should render eligible for the reconciliation bill). The paper

found $65.4 billion per year in savings, through a combination of increased tax revenues on higher wages and reduced federal expenditures on safety net programs due to eligibility thresholds. 

As Dayen points out, the federal savings are not in themselves something to cheer about:

Increased taxes on higher wages still put a worker out ahead, to be sure. But reductions in federal benefits could create a treadmill effect, with the government taking away what the private sector is forced to pay out. As $15 an hour isn’t really a living wage in much of the country, clawing back benefits isn’t a perfect scenario. 

One of the benefits that some people will earn themselves out of as the minimum wage rises is Medicaid. Eligibility for Medicaid as expanded by the ACA is offered to adults with incomes up to 138% of the Federal Poverty Level ($1,468 per month for an individual, $1,303/month for a family of four). To date, 38 states plus D.C. have enacted or will soon enact the expansion, with the last two of those, Oklahoma and Missouri, scheduled to expand eligibility in July of this year.)

The prospect of many people earning their way out of Medicaid creates an imperative to make ACA marketplace more affordable at the lower end of the income spectrum, into which many who are now eligible for Medicaid may churn (or fail to churn).  Medicaid takeup is much higher than low income  takeup in the marketplace. 

At present, a benchmark silver plan (the second cheapest silver plan in a given area) costs 2% of income at incomes ranging from 100-138% FPL (that is, mostly, enrollees in states that have refused the ACA Medicaid expansion), 3.1--4.1% of income at 138-150% FPL, and 4.1--6.5% of income at 150-200% FPL. 

The Affordable Care Enhancement Act (HR 1425) passed by the Democratic House last June would reduce the premium for benchmark silver to $0 -- yes, zero -- at incomes up to 150% FPL, and from 0--3% at incomes in the 150-200% FPL range. That is the existing template as Democrats hash out their Covid relief legislation, slated to include ACA enhancement. How much the proposed subsidy enrichment gets diluted, if at all, remains to be seen. Rep. Underwood's recently reintroduced Health Care Affordability Act, for which legislative text is not yet available, also adopts this enhanced subsidy scale, Charles Gaba has been told.

At present, Cost Sharing Reduction subsidies reduce out-of-pocket costs for a silver plan to a relatively low level at incomes up to 200% FPL -- relative, that is, to plans affordably available at higher incomes. But those CSR-reduced out-of-pocket costs can still feel quite high to people with incomes low enough to qualify for them. In 2021, the average deductible of a CSR-enhanced silver plan is $177 at incomes up to 150% FPL and $800 at incomes in the 150-200% FPL (CSR scales down as income rises).  The highest allowable annual out-of-pocket maximum in silver plans at incomes up to 200% FPL is $2,850 -- considerable exposure, though far lower than at metal levels other than silver or at incomes above 200% FPL, where OOP maximums usually top $6,000 and rise as high as $8,550.  Out-of-pocket costs for covered services in Medicaid are generally zero or close to zero.

At present, premiums for CSR-enhanced silver can take a big bite out of low incomes. At an income for a single person of $13,000/year, benchmark silver costs $22 per month. At $19,000, it's $64/month. At $25,000, it's $132/month. Under the ACA, the premium at $25,000 income (just under 200% FPL) would a bit less than half that amount. And again, high-CSR silver would be free up to 150% FPL ($19,140 in 2021). Those who lose Medicaid coverage would be far less likely to remain uninsured than under current law.  

Enhancing the subsidy schedule in this way would also reduce the federal savings derived from the increased minimum wage. If a bill that includes the wage hike and ACA enhancement approaches passage, the Congressional Budget Office will presumably take those moving parts into account.

On the plus side, a large increase to the federal minimum wage will also reduce the number of people in the so-called "coverage gap" -- that is, people with incomes under 100% FPL in states that have refused to enact the ACA Medicaid expansion (rendered optional for states by the Supreme Court in 2012). In those states, eligibility for ACA subsidies begins at 100% FPL; no insurance help is available to people below that income level, unless they qualify for Medicaid under more restrictive state criteria. According to the Kaiser Family Foundation's estimate, more than 2 million people in nonexpansion states are left high and dry in this way. CBO will also have to account for this further potential boost to marketplace enrollment.

Update, 6:00 P.M.: My home state of New Jersey started phasing in a minimum wage increase from $8.85/hr. in January 2019 to $15/hr in 2024, beginning with an increase to $10/hr. in July 2019. The Urban Institute forecast a modest impact on Medicaid enrollment, estimating that about 30% of minimum wage earners in the state were eligible for Medicaid, but most were not enrolled and would not in any case gain enough income to become ineligible. Urban concluded that "those at risk of losing Medicaid coverage constitute less than 5 percent of all nondisabled, nonelderly adult Medicaid enrollees in New Jersey."  In fact, Medicaid enrollment dropped modestly from July 2019 to February 2020, the eve of the pandemic, from 1.71 million to 1.68 million, but national Medicaid enrollment was also drifting down in this period. During the pandemic, the pause in involuntary Medicaid disenrollments mandated by the Families First Act presumably paused any further drop in enrollment from those obtaining a higher minimum wage (raised to $12.00/hr. last month). 

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1 comment:

  1. The projected federal savings assume that everyone who currently makes minimum wage (or less) keeps their job and gets the new higher wage.

    I would be cautious about that assumption. In some locales, the $15 wage is quite a big increase and could potentially create more unemployment.
    I know this is very hard to model, but I would at least like to see it addressed.