The Corner

Quick Thoughts on the Obamacare Coverage Gap

The immense complexity of Obamacare means that it has had all kinds of unintended consequences. Abby Goodnough, a reporter for the New York Times, draws our attention to a particularly surprising one: in states that have chosen not to expand Medicaid, there are roughly 4 million low-income working adults who fall into a “coverage gap.” That is, these women and men earn too much to qualify for Medicaid yet not quite enough to qualify for the new Obamacare insurance subsidies. A large majority (76 percent) of those in the coverage gap are adults without children, as Medicaid eligibility rules tend to be more generous for families with children, but the rest are poor parents who haven’t earned their way out of it. According to Goodnough, “many of those people are taking second jobs or working extra hours to increase their incomes, hoping to become eligible for assistance that will enable them to afford marketplace plans.” Though Goodnough acknowledges that we don’t have hard evidence as to how many of the working adults who call into the coverage gap have been trying to earn their way out of it, she does report that ” enrollment counselors around the country say they routinely help people think through whether they can scrape together extra income to qualify for financial help.”

“If they are self-employed and clean houses, we calculate how much do you get per house?” said Elizabeth Colvin, who runs an enrollment program through Foundation Communities, a nonprofit group here. “Could you do one extra house a month?”

“Sometimes they’re like, ‘I’m doing all I can; I can’t do any more,’ ” she said. “But then sometimes they’re like, ‘Yes, I’m actually looking for a part-time job right now.’ ”

Goodnough tells the story of a few different people who’ve fallen into the gap, and it seems that it’s not uncommon for people who had been working part-time to start working full-time to gain access to subsidies. Many of the people Goodnough quotes in her story find the coverage gap absurd. The notion that one would have to earn more to gain access to subsidies strikes them as perverse. But one wonders if encouraging low-income adults to work longer hours might help them gain the experience and the skills to climb their way into the middle class. 

Welfare reformers have long called for imposing work requirements on those who receive public assistance, or for treating the working poor differently (and more generously) than the able-bodied non-working poor. One challenge, however, is that statutory work requirements can be undermined over time, often because local officials weaken them or fail to enforce them. The coverage gap has inadvertently created a strong work incentive — inadvertently because the Obamacare Medicaid expansion was meant to be optional in name only, but the Supreme Court gave state governments more wiggle room by introducing what some legal scholars have called an “anti-leveraging principle.” And this work incentive is not easily gamed, as you either earn enough income to cross the threshold or you don’t.

But that doesn’t mean that Obamacare coverage gap is a good thing. According to the Kaiser Family Foundation, 43 percent of adults in the coverage gap work full-time. These are people for whom increasing work hours would be extremely challenging. Yet they are also people for whom Medicaid, which was originally created for people who were expected to be permanently indigent, and not people facing either temporary dips in their income or people in the early stages of their working lives, might not be the best solution.

A more straightforward way to improve work incentives would be to simply replace the sliding-scale Obamacare subsidies with a flat tax benefit available to all adults who don’t receive employer-sponsored insurance, as Ramesh Ponnuru and Yuval Levin, among others, have proposed. This credit would be big enough to allow people to purchase catastrophic coverage, but not big enough to pay for comprehensive coverage. Medicaid would serve as a top-up benefit for people for the very poor, for whom cost-sharing is unrealistic. There would thus still be a work disincentive for people slowly earning their way out of Medicaid eligibility. But under Obamacare, the sliding-scale subsidies extend this work disincentive problem well up the income scale, as subsidies keep tapering off until families reach 400 percent of the poverty line, at which point they end. Moreover, the flat benefit would give adults in the coverage gap the help they need to purchase insurance against catastrophic medical expenditures. 

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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