Panel Paper: Trade-Offs between Social Welfare Programs?: An Examination of State Medicaid Policies and the Earned Income Tax Credit

Saturday, November 9, 2019
Plaza Building: Concourse Level, Plaza Ballroom F (Sheraton Denver Downtown)

*Names in bold indicate Presenter

Jourdan A. Davis, Bradley Hardy, Jocelyn Johnston and Aeric Koerner, American University

Two of the most important U.S. social welfare programs, the earned income tax credit (EITC) and Medicaid, are financed primarily by the federal government, but are also shaped significantly by state policy choices. This paper assesses whether states altered their EITC policies, “trading off” as Medicaid expansion took hold.

The EITC enjoys bipartisan support among federal and state policymakers and has evolved into the largest federal income support program. The federal EITC offers working Americans a refundable tax credit that effectively subsidizes wage income for low- and moderate-income working families with dependent children. Several states offer supplemental EITC programs that vary widely with respect to both the size of credits offered and whether the EITC is refundable or nonrefundable. Medicaid, the second program analyzed here, offers health insurance for low-income individuals and is jointly financed by the federal and state governments. The recently enacted Affordable Care Act (ACA) authorized heavily subsidized support for state “Medicaid expansion” programs. Medicaid expansion, adopted by several states, substantially broadens eligibility criteria for the program, reaching well above the poverty line and covering single individuals without children – a category of individuals largely uncovered by traditional Medicaid programs.

Medicaid has historically consumed major portions of state budgets (competing primarily with K-12 public education), and states have been sensitive to rising costs. Federal matching rates for Medicaid expansion state spending are far higher than for traditional Medicaid. Nonetheless, expansion states face some increased costs and the potential for future growth in their financial responsibility for expanded coverage and services.

This paper assesses whether (1) generous federal Medicaid subsidies give states space to reconsider their own EITC income support; (2) states view Medicaid expansion as a potential substitute for state EITCs and state EITC growth; and (3) states choose to reduce their investments in the supplemental EITC as a result of Medicaid expansion. To explore these questions, we construct a state-level panel data set covering the years 2002 to 2012 using information from the Medicaid Statistical Information System (MSIS) and the University of Kentucky Center for Poverty Research’s (UKCPR) National Welfare Data. Our purpose is to determine whether state policy choices for state-level social welfare support programs have been altered by the ACA and the benefits it directs to low-income households and individuals.