I’ve written in the past about how the Welfare State creates an incentive structure that encourages government dependence over additional work income. In short, it is often the case where a person on government assistance can make themselves worse off by accepting more hours or a better job because the value of the government benefits lost far exceeds the increase in salary. This creates a dangerous poverty trap for people in which they are incentivized to remain under a certain income level to continue receiving valuable government benefits or risk actually making themselves worse off by improving their work situation.
An excellent example of how this works on a personal level was on display in this letter to the editor in South Carolina’s “The State” newspaper:
My son, diagnosed with chronic asthma, received Medicaid for the first two years of his life. I was a single mom making less than $16,000 a year. While I was insured through my job, Medicaid covered fees not assumed by my private insurance, such as my deductible, co-pays and prescriptions. Then something bad happened: I received a salary increase of $2,000, and my son was immediately removed from Medicaid.
My small salary increase wouldn’t come close to paying the increase in medical costs, and I realized that I was actually going to become poorer. (emphasis added)
More than 70 million people participate in the Medicaid program nationwide. Similar situations play out for many. While Medicaid finances health care for the elderly and disabled, 33 million recipients are children of low-income, presumably able-bodied parents, and 19 million are able-bodied adults. How many of these people choose not to get a second job or refuse extra hours at work because their Medicaid eligibility is hinged upon their income? With all the good Medicaid does, it’s disheartening that it disincentivizes families from improving their economic situation.