March 13, 2019

Will Benefits Updates Follow Wage Increase?

For every dollar the boss had and didn't work for, one of us worked for a dollar and didn't get it - Women's March signThe long fought-for $15 minimum wage bill was signed into law by Governor Pritzker on February 19. It raises the state’s minimum hourly wage from $8.25 to $9.25 next year, and then phases it in to $15 by 2025.

Although the federal minimum wage is still $7.25, much of the country has moved on. More than 60% of the working age population is estimated to live in areas with a higher-than-federal minimum. Chicago and Cook County have raised theirs, currently at $12 and $11, respectively. California, Massachusetts, and New Jersey will beat us to $15. As of January 2017, 29 states and a couple dozen cities had set their own minimum wage, and a dozen states automatically raise it every year to keep pace with inflation.

About 353,000 Illinois residents make less than $10 an hour, and another 1.06 million make less than $15. The bill’s sponsor, state Senate Majority Leader Kimberly Lightford of Maywood, noted – as we often have also noted – that people in Illinois who work full time at $8.25 an hour fall below the poverty line.

And this is an important point. The federal poverty level is used to determine eligibility for Medicaid, SNAP, and other programs. Originally developed in 1964 based on the Department of Agriculture’s “thrifty food plan” (which actually was only meant for “temporary or emergency use when funds are low”), it is updated every year using the Consumer Price Index.

The buying power of the federal minimum wage peaked in 1968, and has been creeping downward ever since. A widely reported study by the Center for Economic and Policy Research in 2017 calculated that if it had kept pace with inflation, the federal minimum would be $21.

And there’s the rub. The Fight for 15 campaign was originally sparked by a 2012 walkout of fast-food workers in New York, and spread like a slow burn. Granting a $15 minimum wage more than a decade later in 2025 means a lot less than it would have in 2012.

And yet, it may still have the potential to knock people out of eligibility for the programs that keep them alive. One governor has actually used that logic to support raising the minimum in his state – Pennsylvania – saying that it would save the state in Medicaid expenditures.

Studies have consistently found that a minimum-wage increase is beneficial – to the economy in the form of increased buying power, and to government in the form of tax revenues; it has not been found to lead to significant job loss or price increases. For most low-income workers, it is a positive change, typically outweighing the loss in benefits in cases where “lifting someone out of poverty” also lifts them out of eligibility. But in some cases, it isn’t.

Improving people’s income status just enough to make them lose public benefits that are worth more than the raise is known as the “eligibility cliff.” Colorado did look at the issue, in advance of a 2016 ballot initiative aiming to raise their minimum to $12 next year. (It was approved, as were similar measures that fall in Arizona, Maine, and Washington state.) They found the raise would have a significant positive impact, raising working families out of poverty and boosting the economy without significant job loss or price increases.

But some would not benefit. “Increasing minimum wage increases can, unintentionally, force many workers either to decrease hours worked in order to retain Medicaid coverage or forego health coverage altogether” noted the study. ”When Colorado’s minimum wage rises to $12 an hour in 2020, the choice of whether to buy increasingly expensive private health insurance will become a new concern for as many as 80,000 workers who will no longer be eligible for Medicaid if they maintain full-time hours.” A study by Christine Eibner, a RAND Corp. economist specializing in healthcare delivery systems, also found that minimum wage increases by states to be associated with reduced enrollment in employer-sponsored health plans.

The Colorado study suggested several strategies to mitigate the cliff effects, including increasing eligibility for the state’s County Child Care Assistance Program by raising eligibility thresholds and reducing barriers, monitoring out-of-pocket costs for state health programs to ensure they remain affordable, and implementing supplements to the LEAP and WIC programs.

Here in Illinois, there was jubilation at last month’s signing of SB 1 – and appropriately so after the long struggle. Sen. Lightford alone has sponsored numerous minimum wage bills. (One passed both houses in 2017, but was vetoed by Gov. Rauner.) There is no question enactment at last called for celebration. “So many people deserve the opportunity just to feel hope,” Sen. Lightford told the Tribune.

We celebrate it too. We just don’t want to see anyone drown in that rising tide that is lifting all boats. We need a comprehensive plan for all of our public benefits programs, so they can better protect against poverty – and so that the cliff is not ignored right up until people are plunging over it. The luxury of our new minimum wage law is that we will know well in advance when this will become an issue and can plan to mitigate it.

Already, Gov. Pritzker has pledged to raise childcare eligibility. Our hope is that the Medicaid program, which covers 1 in 4 Illinois residents, can be next.

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