Medicaid’s Poverty Trap Illustrated

Commentary by John R. Graham

Source: The Independent Institute

The tragic story of a disabled woman trapped in poverty by the hodge-podge of ways the U.S. finances health care illustrates why we need to sweep the whole thing away and give everyone a universal, refundable tax credit:

On a crisp California morning in February 2012, my sister-in-law, Marcella Wagner, was driving down the interstate toward Chico State University, where she had just entered the nursing program.

To avoid a collision, she jerked the wheel hard, and her car veered off the freeway. It rolled over, crushing the roof. The other driver sped off, never to be found.

But Marcella was left a quadriplegic, paralyzed from the chest down and with little use of her hands. She will need a wheelchair and round-the-clock personal care assistance indefinitely.

Marcella qualified for Medi-Cal because she is disabled, but because Medi-Cal is for poor people, Dave and Marcella have to be poor to receive it.

As a family of three with one disabled member, they are allowed to keep $2,100 of Dave’s $3,250 monthly earnings to live on. The rest of Dave’s earnings, $1,150, would go to Medi-Cal as the family’s share of cost. That is, any month in which Marcella incurred medical expenses, she and Dave must pay the first $1,150. To our surprise, if Dave earned more money, the extra amount would also go to Medi-Cal: The cost sharing is a 100 percent tax on Dave’s earnings.

Essentially, the way they meet the income test is for Medi-Cal to skim off Dave’s income until they are in fact poor.

(Andrea Louise Campbell, “How Medicaid forces families like mine to stay poor,” Vox.com, July 28, 2015)

This is the “poverty trap” imposed by means-tested welfare programs that I have discussed before. The best way to fix it is through a fixed sum, universal tax credit, as described by Senior Fellow John C. Goodman in his new book, A Better Choice.