This article was originailly published in the Fayetteville Observer, August 2007
We are often treated to editorials about "desperately needed" programs like children’s Medicaid. This year’s state budget expanded the program to 300 percent of poverty via a program called N.C. Kids’ Care. But do working families in North Carolina really need these programs? Contrary to the popular narrative, most lower-income families in North Carolina could afford to insure their children. Indeed, expanding Medicaid creates incentives not only for poorer people not to get insurance, but also to earn less money.
Consider this: the average pack-a-day smoker in N.C. pays $3.75 per day for her habit (most heavy smokers use two packs a day, but let’s be conservative). That adds up to a $112.50 per month cigarette bill. A glance at BCBSNC.com – nearly a health insurance monopoly in NC – offers the following plan covering a 6-year-old child in Fayetteville: Blue Advantage B, with a $500 deductible, 80% coverage and $15 co-pay for office visits costs $115.93 per month. Families purchasing health savings accounts (HSAs) come out even better. But because most people don’t understand HSAs, let’s assume they’ll go with the familiar plan.
Now, consider also that "32.9 percent of [US] adults who are below the poverty level smoke" according to TobaccoFreeKids.org. This estimate may well be higher in N.C. – a state that has cheaper cigarettes than many states. And let’s not forget Kids’ Care is meant to help cover families up to 300% of the poverty level ($61,000 for family of four). OK, so that’s 33 percent of our lowest-income families who could afford insurance for a child if just one parent gave up smoking. Are there other things lower-income folks might trade off for a child’s healthcare? Fast food? Sugary snacks? Lottery tickets? Custom Rims? Beer? Xbox Games?
The point is many lower-income families are not as poor as we think. Indeed, new programs such as N.C. Kids’ Care may actually serve to keep people in a low-wage trap. Just like welfare did prior to 1996, state-run healthcare has the effect of incentivizing people to accept lower wages and punishes them for improving their lot. In fact, at a certain level of family income, you actually get less for upward career mobility.
Healthcare expert Michael Cannon of the Cato Institute illustrates this wage-trap starkly: "[S]uppose a single mother of two small children in New Mexico has an opportunity to increase her annual earnings from $25,000 to $29,000. According to the federal government, the additional taxes and the gradual loss of government aid would cause her income to go up by only $200. If she increased her earnings to $31,000, her income would actually go down by $2,700." Proposals like N.C. Kids’ Care actually create greater disincentives to work.
Again, expanding Medicaid actually makes it more expensive for people who choose private plans. Because much of the expansion focuses on children who are healthier and would therefore lower costs for everyone in the risk pool, N.C. Kids’ Care represents a double whammy in terms of driving up the cost of health insurance.
Health insurance is expensive, to be sure—which can be hard on lower-income families. This problem is compounded by a couple of factors: By law, North Carolinians can’t shop around for less expensive plans out of state. New state coverage mandates like mental health parity drive up premiums. And younger, healthier people are leaving the private insurance risk pool due not only to those higher premiums, but to Medicaid expansion – making insurance more expensive for everyone else. Despite these unnecessarily inflated premiums, most families still don’t need this expansion of Medicaid.
The original idea behind Medicaid was to help the very poor. Now politicians intend for the expansion of such programs to make stepping-stones that will pave the way to socialized medicine. They rarely think about the unintended consequences of social welfare programs on people’s behavior and the economy. Medicaid expansion is a perfect example of how self-congratulatory policies designed purportedly to help children may actually rob families of personal responsibility, offer them incentives to remain poor, and keep them from facing life’s trade-offs (like trading cigarettes for a child’s healthcare) … Then again, somebody has to pay the cigarette taxes.