Conservatives often complain that welfare—Medicaid included—tends to trap the poor in a cycle of dependence on government largesse for the simple reason that all means-tested welfare programs come with strong disincentives for beneficiaries to increase their income. If your pay increases beyond a certain point, you lose taxpayer-funded benefits, which are almost always worth more than a slight bump in pay. Policy wonks call this an “income cliff,” and Pence’s plan has the highest one yet for the Medicaid expansion population.
Consider than under Pence’s plan, a Hoosier earning $16,104 (or 138 percent of the federal poverty level, the income limit for Medicaid expansion under Obamacare) will pay a maximum of $322 a year for very generous HIP 2.0 coverage with no other out-of-pocket costs. If this person’s income increases at all, he loses his HIP account and will be forced to buy coverage on the Obamacare exchange, where his healthcare costs will skyrocket to nearly $2,800 a year in deductibles and copays for the benchmark silver plan.
Faced with such a choice, who would ever choose to earn more? In his statement, Pence said his goal is “to ensure that low-income Hoosiers have access to a health care plan that empowers them to take charge of their health and prepares them to move to private insurance as they improve their lives.” Yet the incentives built into his Medicaid scheme almost guarantee that poor Hoosiers will never opt to move to private insurance. They will instead become permanent dependents of Indiana’s expanding welfare system.