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Journal Issue: The Next Generation of Antipoverty Policies Volume 17 Number 2 Fall 2007

Introducing the Issue
Ron Haskins Isabel Sawhill

Improving Supports for Working

Like the stick-and-carrot approach for mothers, these approaches with fathers try to capitalize on policies that both push and pull men into the workforce. But many observers believe that the current work supports for lowincome workers, whether male or female, are inadequate. The new combination of work requirements, sanctions, and work supports has been moderately effective, but it should be regarded as an evolving system that needs constant attention and improvement to bring still more adults into the workforce and to provide them with supports that will allow them to better their material lives and those of their children. Two of the most important problems in the current system are the shortage of funding for child care and the number of poor working adults who are not covered by health insurance. The work support system would be greatly improved if the nation could guarantee child care and health coverage to all parents who are willing to work. Thus we asked Mark Greenberg, a noted child care expert at the Center for American Progress, to propose a plan to expand child care, and we asked Alan Weil, executive director of the National Academy for State Health Policy, to propose a plan to cover all poor working families with health insurance.

Providing Good Child Care
Greenberg’s proposal is based on the view that a national child care strategy should pursue four goals. First, every parent who needs child care to get or keep employment should be able to afford care without having to leave the children in unhealthy or dangerous environments; second, all families should have the opportunity to place their children in settings that foster education and healthy development; third, parental choice should be respected; and fourth, a set of good child care choices should be available. To attain these goals, the nation should revamp both federal child care subsidy programs and federal tax policy related to child care. Today subsidies are principally provided through a block grant structure in which states must restrict eligibility, access, or the extent of assistance to husband limited federal and state funds. Tax policy principally involves a modest nonrefundable credit that provides little or no assistance to poor and low-income families.

To improve this flawed system, Greenberg would replace the block grant with a federal guarantee of child care assistance for all working families with income under 200 percent of poverty. This federal assistance program would be administered by the states under a federal-state matching formula, with the federal government paying most of the cost. States would be responsible for developing and implementing plans to improve the quality of child care, coordinate child care with other early education programs, and ensure that child care payment rates are sufficient to allow families to purchase care that fosters healthy child development. In addition, Greenberg would restructure the federal dependent care tax credit as a refundable tax credit, with the credit set at 50 percent of covered child care costs for the lowest-income families and gradually phasing down to 20 percent as family income increases.

Taken together, the subsidy and tax changes would lead to a better-coordinated system of child care subsidies in which working families below 200 percent of poverty would be assured of substantial financial help, while taxbased help would ensure continued, albeit significantly reduced, assistance for families with higher incomes. Greenberg estimates that the additional cost of these two reforms would be on the order of $13.5 billion a year, of which the federal share would be about $8.5 billion if that share remained the same as under current law.

Providing Health Insurance
Another work support that is needed by lowincome working families is health insurance. Medicaid was created in 1965 to provide health insurance to poor and disabled individuals and families. The original program, however, created a major work disincentive because virtually the only way to get Medicaid coverage was to be on welfare. If a mother on welfare went to work, in most cases both the mother and her children lost their Medicaid coverage. Beginning in the mid-1980s, Congress gradually began to loosen the link between welfare and Medicaid for children. Then, in 1997 Congress enacted the State Children’s Health Insurance Program (SCHIP), which provides coverage to children in families with income well above the poverty level. Now, regardless of welfare status, nearly all children in families with incomes under 200 percent of poverty are covered by either Medicaid or SCHIP. Despite being a great improvement over the old system, the new one nonetheless suffers from a serious flaw: poor parents are often not covered. Parents who leave welfare normally get a year of coverage, but after that they are uncovered unless their employer provides a subsidized plan—which is rarely the case in the low-wage market in which most of these parents participate. Similarly, parents who avoid welfare but take one of the millions of jobs that do not provide employee benefits usually have no coverage at all. This lack of coverage for adults constitutes a disincentive to work and may indirectly affect the health of children, because adults without health insurance are less likely to take their children for preventive care.9

Alan Weil proposes creating a federal earned income health credit (EIHC) combined with redefining the federal floor of coverage through Medicaid and SCHIP. His proposal is designed to address the two key requirements for an effective policy of covering all members of poor and low-income families: overcoming the affordability barrier that so many families face and making sure enough options are available that individuals and families can obtain coverage using a combination of their own, their employer’s, and public resources.

The EIHC, which borrows heavily in its design from the EITC, would be a refundable tax credit claimed each year on the federal tax return but available during the year in advance of filing. The credit would be based on taxpayer earnings and family structure, with the amount phasing in as earnings increase, reaching a plateau, and then phasing out farther up the income scale. The credit would be larger for families with dependents, reflecting the higher cost of health insurance for a family than for an individual. The EIHC would be available only to adults who demonstrate that they had health insurance coverage during the year and, in the case of adults with children, only if their eligible dependent children were enrolled in either a private or the appropriate public program. For recipients whose children are enrolled in a public program, the value of the EIHC would be reduced.

Weil’s proposal includes provisions for handling individuals who receive coverage from their employer and those who do not. The EIHC is designed to function seamlessly with the employee payroll withholding system. The proposal smooths transitions from public to private coverage, and it anticipates a substantial role for states. Weil estimates that his policy would cost about $45 billion a year ($35 billion in federal dollars and $10 billion in state dollars).