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Building Guardrails for the Benefits Cliff

When a small bump in salary costs more in needed social services than the pay hike brings in, something's wrong. Using broad partnerships, state and federal policymakers are beginning to address the issue.

(Gus Chan, The Plain Dealer)
The two New Hampshire moms had to pick their poisons. One worked for an auto dealership and was offered a promotion and a $4-an-hour raise. The other, a pharmacy-chain employee, completed a pharmacy tech training program, got a $4-an-hour bump in pay, and believed she was on a path toward a "real" career with upward mobility. Yet despite — actually, because of — the cash infusions, both faced the prospect of being worse off.

How? Both would lose child-care assistance, which was worth more than the raises. The car sales employee declined the pay hike and stayed in her lower-pay job. The pharmacy tech realized too late that she was ineligible for assistance, put her child-care expenses on her credit card and sank deeper and deeper into debt.

These mothers were not alone. Modestly higher earnings risk a loss of not just child-care assistance but also Medicaid, housing and transportation subsidies, and nutrition assistance. It's called "the benefits cliff": in effect, a tax rate of more than 100 percent when a parent loses more than a dollar in state and federal benefits for each additional dollar earned. As a 2018 paper entitled Whole Family Approach to Jobs, exploring efforts to address the benefits cliff in the six New England states, put it, "The cliff effect creates a continuous uphill climb, rather than a ladder out of poverty."

State and federal policymakers agree that something must be done, and they're starting to experiment with remedies. The Whole Family Approach to Jobs Project, for example, is a national initiative. Under this approach, multiple state and local agencies and business partners collaborate to provide a comprehensive array of supports. The agencies also give adults and children in a family tools to set, plan for and achieve goals ranging from education, housing and transportation to financial stability — all of them elements of the social determinants of health. Evidence shows that good health is foundational to financial security and that these social determinants are interdependent; it's harder to be healthy without a home or a job. The COVID-19 pandemic and the opioid crisis, with their ruinous impact on health, jobs and family finances, make a solution to the benefits cliff — a policy guardrail — all the more urgent.

New Hampshire may be a harbinger of things to come for other states. It showed the importance of social determinants of health, cross-sector solutions and partnerships. It incorporated data to inform decisions. State leaders recognized that it's critical to go beyond reforming old systems and instead to transform those systems into a new approach. And it brought the people most affected — its residents — to the table to help develop the changes.

New Hampshire started to connect the dots in 2017, when demand for child welfare services was on the rise even though the Granite State had the lowest unemployment rate in the nation. Among the reasons: the opioid crisis and crushing housing costs. About 47 percent of New Hampshire households were paying more than 30 percent of their income for housing, the benchmark for affordable housing. The number of people experiencing homelessness rose 10 percent from 2016 to 2018. All of this made it harder to make progress on other fronts, from education to employment to mental health and substance-misuse treatment.

New Hampshire Republicans and Democrats decided to collaborate on solutions. They made investments that enabled agencies and stakeholders to bust long-standing silos and work together in unprecedented ways to transform the child welfare system and address the cliff effect simultaneously. The process also brought to the table parents, business representatives, medical professionals, law enforcement, educators, legislators and advocates. Policymakers began to address the connections among good health, economic stability, child safety and family well-being.

A key innovation is being built now: a benefits-cliff calculator. It'll let parents and employers see how wages affect benefits. In addition, policymakers realized that variations in living costs and job availability required community-by-community analyses and action plans to solve the cliff problem at the local level. The right data has to be at the forefront of decision-making and can help government leaders answer some fundamental questions: Is the median income enough for a family to live in a community? How should employers, the state government and philanthropies divvy up providing the funds that a family needs? Are families of color disproportionately affected?

The goal is to help families meet their needs and step up off of government aid. Throwing working parents like the pharmacy tech and car sales moms off a cliff won't achieve that goal. Policies that address the whole family's needs will. With the prospect that even with a vaccine the economy will continue to be sickly under the weight of the pandemic, the need to act now is imperative.

Governing's opinion columns reflect the views of their authors and not necessarily those of Governing's editors or management.

A principal associate at Abt Associates
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