State assistance should encourage autonomy

The Entitlement State: Part II

By Geoffrey Lawrence
  • Wednesday, November 20, 2013

Societies prosper when individuals are innovative and productive.

Virtually everything that is consumed — from health care to automobiles to video games — requires someone’s labor and creative thought in order to exist.

Therefore, any society that wants to flourish should reward its members for hard work and for intelligently increasing the quality and availability of the goods and services they produce.

Obvious, right?

In today’s America, however, elected officials increasingly find it difficult to draw the line between helping those who fall on hard times to get back on their feet and cultivating long-term dependency on the state — underming individuals’ incentives to seek employment or entrepreneurial opportunities.

In many states, including Nevada, the hourly-wage equivalent of government assistance now exceeds the wage levels found in most entry-level jobs for individuals given benefits through each of the largest programs. For states that have expanded Medicaid eligibility under the federal Affordable Care Act — such as Nevada — government assistance is now offered to single, able-bodied adults with no dependents. The prospective loss of these benefits discourages beneficiaries from seeking entry-level employment and building a life of financial independence.

Numerous studies confirm that people respond to expanded availability of government assistance by slowing their job-search efforts. Harvard professors found that extensions of unemployment benefits lengthen the duration of unemployment. Princeton professors found the same thing, as even has Obama economic advisor Larry Summers. The examination of other assistance programs yields similar findings.

If assistance programs really are intended to be a “social safety net,” however, then a primary goal should be transitioning beneficiaries back to the workplace and removing them from the welfare rolls quickly.

Federal legislation reforming Aid to Families with Dependent Children (AFDC) in 1996 — widely viewed as a success in transitioning beneficiaries back to the workplace — imposed some work requirements as a condition of receiving benefits. Further, the change enjoyed bipartisan support and has been extremely popular — a 2012 poll revealed that 83 percent of Americans favor the work requirements and only 7 percent oppose them.

However, AFDC — now called “Temporary Assistance to Needy Families” — was only one program, and many assistance programs have continued to proliferate. At least 127 such means-tested programs now exist at the federal level alone. And in most states, the cumulative level of available benefits today exceeds what was available prior to the 1996 changes — even after adjusting for inflation.

The largest share of Nevada’s $20.167 billion state budget today goes for spending on transfer programs: approximately $7.8 billion. For most programs, a majority of the dollars come through federal agencies. The one program that requires significant allocations from state taxpayers is Medicaid. The fastest growing budget item for more than two decades, it will soon displace K-12 education as the largest expenditure of state tax dollars.

So how can Nevadans get a handle on this growing entitlement state? Policymakers must first consider how programs like Medicaid affect the set of incentives facing beneficiaries and, consequently, how the programs can optimize those incentives. Like other assistance programs, Medicaid should not be designed to foster long-term dependency.

Of course, not every Medicaid beneficiary is physically able to work, but many can take non-strenuous desk jobs. Others are able to work without physical limitation, and Medicaid and other assistance programs should facilitate their return to the workplace.

Fortunately, Nevada needn’t reinvent the wheel to discover how Medicaid can accomplish this objective. The federal Deficit Reduction Act of 2005 allowed states to apply to restructure Medicaid benefits around “Health Opportunity Accounts” — a concept similar to private Health Savings Accounts.

HOAs are private accounts — held by beneficiaries whose health concerns are not serious — into which the state Medicaid program deposits up to $2,500 each year. With their accounts, beneficiaries can purchase health care directly from providers using electronic debit cards — allowing them to go outside the constrained Medicaid provider network if they need to. If the money in the account is exhausted, the beneficiary reverts to standard fee-for-service Medicaid coverage.

But here’s where an HOA really changes incentives: If the beneficiary gains employment and thus loses Medicaid eligibility, he or she gets to keep 75 percent of the funds in the account and is able to use that money to purchase private coverage or other medical expenses or even to purchase job training. Not only does this option provide an incentive for beneficiaries to avoid seeking superfluous care, but it also lowers the transition costs associated with returning to work and losing welfare benefits.

As much promise as HOAs offered, however, federal legislation in February 2009 — just after President Obama assumed power — prohibited any new states from structuring Medicaid around the HOA.

So, while Nevada needn’t reinvent the wheel, it will need to convince federal policymakers that HOAs are a necessary policy tool — both here and in states around the nation.

Geoffrey Lawrence is deputy policy director at the Nevada Policy Research Institute. For more visit

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