Medicaid work requirements & the cost of childcare

October 20, 2018

Person Working
Photo credit: Mad Fish Digital

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As of August 2018, three states have been approved for waivers from the federal government (so called '1115 Waivers') that would allow them to modify their Medicaid programs to require work requirements for all recipients. Another eight have waiver requests under review, and Kentucky's waiver was ultimately blocked in court.

What does it mean to require work requirements? Historically, Medicaid eligibility has not been based on employment status. In fact, Medicaid, which is the largest public health insurance program for people with low incomes, is open to people if they have incomes below a threshold or if they fit into certain categories, such as being pregnant or disabled. Although the Affordable Care Act expanded eligibility so that everyone making below 138% of the federal poverty line could get insured, a succcessful 2011 Supreme Court challenge of this provision means that states can choose to expand or not expand Medicaid eligibility.

But in January 2018, the Centers for Medicare & Medicaid Services (CMS) issued a letter to every state Medicaid director with guidance for implementing work requirements in Medicaid programs. This letter signaled a new willingness to approve these Section 1115 waivers to allow programs to make non-standard changes to how they run their programs. No prior administration has approved waivers imposing work requirements.

According to the Department of Labor, 4.4% of the U.S. population is unemployed. A still larger number, 37%, are considered 'non labor force participants' because they're unemployed but are not job seeking.

People work or don't work for a number of reasons. Some have difficulty finding a job where they live, or can't find one that fits their qualifiations. According to an analysis from the Brookings Institution’s Hamilton Project, the people who are outside of the labor force tend to be women with a high school education (or less) and 40% are caregivers.

So this made us wonder, what happens to parents who are taking care of young children if work requirements impact them?

Medicaid work requirements: United States 2018

Status of Medicaid work requirements, 2018

Source: Kaiser Family Foundation.

What about parents of young children?

Of the waivers approved so far, at least seven would require parents caring for children to work, generally between 20-30 hours per week. But we know that the cost of childcare is high and continuing to increase: by one estimate, the cost has increased by 39% from 1990-2011.

So if a parent has to go work out of the home for 20-30 hours per week, what do they do with their children? According to the Census, 89% of families with two working parents use weekly, nonparental childcare arrangement (it's 83% for single-parent homes). In these families, around 57% use center-based childcare including day care centers, Head Start programs, prekindergardens, and other early childhood programs.

Head Start is a program that provides education for low-income children that's been around since the 1960s. The program is an important source of free education and social services for families, but only if it's available. According to a study from Rutgers University, though, Head Start is only serving 40% of 3- and 4-year olds in poverty (and only 5% of those under 3).

So if a parent with young children is employed outside of the home, many will need to rely on services from family members or others in their community, or they will need to pay for childcare.

To understand the benefits of employment and the costs of placing children into childcare outside of the home, we decided to do the math. We wanted to see what would happen if one of the caregiver women with a high school education or below, one of the 37% unemployed and not seeking work, decided to put her child in daycare and take a position. To do this, we first looked at the cost of minimum wage and the average number of hours worked per week in every state.

How much money is the minimum wage, anyway?

As of July 2018, the minimum wage ranges from $5.15 per hour in Wyoming and Georgia to $13.25 in the District of Columbia. Five states have not adopted a minimum wage; for these, we assume the federal minimum wage of $7.25.

To figure out how much a minimum wage earner would actually earn depends on two factors: which sector they are likely to work in, and how many hours they are able to work every week. In 2017, 53.2% of people earning at or below the minimum wage worked in food preparation and serving-related occupations. Another 10.9% work in sales and related occupations, 6.5% work in personal care and service occupations, and 5.8% work in transportation and material moving occupations.

The number of hours worked varies widely by sector. Hourly employees in the hospitality or leisure sector work the fewest hours, an average of 24.8 hours per week, while those in mining and logging work the highest hours (47.2).

Using the percent of minimum wage earners working in each sector and the average number of hours worked each week by sector, we calculate that minimum wage workers work an average of 29.8 hours per week. Of course, people earning the minimum wage may work lower or higher than the average, and there is considerable variation between sectors and between states, but it's useful as a rough estimate.

To calculate the monthly earnings in each state, we multiply this estimate by the state minimum wage. We find that, on average, people earning the minimum wage will take home $1,032 per month pre-tax. This ranges from a low of $613 in Wyoming and Georgia to a high of $1,578 in the District of Columbia. We didn't adjust for taxes or other deductions, so the actual take-home pay could actually be lower.

So what does this mean for childcare?

To understand the cost-effectiveness of work outside of the home for parents raising children, we estimate how these costs compare to a minimum wage income. Many sources of data on the cost of care exist, so we used data from New America, Child Care Aware, and Business Broker on the cost of center-based childcare in each state. According to these datasets, the average cost of center-based childcare is $15,304 per year, or $1,275 per month.

By simply subtracting these average costs from the average monthly salary of a person earning the minimum wage, we calculate the anticipated income gains for a person that takes a minimum wage position while paying the average costs of childcare. We find that in 42 states and the District of Columbia, a parent would pay out of pocket in order to work. In the eight states would a person earn a net income, the average income totaled just $85.63 per month.

Average monthly income after childcare expenses at the minimum wage: United States 2018

Source: Calculated using minimum wage data, proportion of minimum wage jobs in job sectors, average hours worked in minimum wage jobs by sector, and average cost of childcare.

What does this mean for work requirements?

In states where parents would be required to work outside of the home, in order to get health insurance, this finding illustrates the difficult tradeoffs parents would need to make between workforce participation, accessing healthcare, and parental responsibilities.

Financially, in the majority of the country, we find that putting kids into paid childcare programs is not financially viable for low-income parents. As a result, many parents will need to turn to family members, community members, or lower cost alternatives. Unlicensed childcare facilities are usually cheaper to the parent, but risk children being exposed to unsafe conditions or being cared for by people without licensure or proper training.

Implementing work requirements is risky business: in the best case, some people may enter the workforce and will move on to fruitful careers. But in the worst case, these policies can actually cost low-income families money or end with revoking their access to affordable health insurance. Children, in the middle of all of this, may pay the price by losing reliable care.

Of course, above all else these findings highlight the need for broader changes to the costs of childcare, the affordability of healthcare, and to the minimum wage, to avoid placing parents in a position of choosing between being eligible for health insurance and the well-being of their children.

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