Is There a System Supporting Low-Income Families?

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Summary

This paper considers four programs—Medicaid and the State Children's Health Insurance Program (SCHIP), food stamps, child care subsidies, and the earned income tax credit (EITC)—that form the core work support system for low-income working families in the United States. These programs potentially provide health insurance, assistance with food purchases, assistance with child care expenses, and an earned-income supplement to low-income working families that meet certain eligibility criteria. The paper begins by describing the recent evolution of these programs and the key differences and similarities in how their funding, eligibility, and delivery systems work. The next section describes recent trends in program participation and examines the receipt of benefits among working families in 2002. It then synthesizes the recent literature that helps to explain observed differences in program participation. The third section illustrates some recent innovations that attempt to deliver work supports to low-income families through a more efficient, coordinated system. The final section summarizes our findings and their implications for improving the work support system in the United States.

The key findings in the paper include the following:

• All four programs have unique eligibility benefit rules, and with the exception of the federal EITC, the rules vary across states. Eligibility can vary by work status, age of children, and immigrant status. It varies greatly by income levels across the different programs. Some programs have financial asset tests, and many have child support enforcement requirements. Some require cost sharing that varies as income changes.
• Spending on work supports increased between 1996 and 2002, the period following the 1996 federal welfare reforms. In 2002, federal and state governments spent $131 billion on these work support programs, 27 percent more than in 1996 (in real terms). Expansion in Medicaid and SCHIP enrollment and rising health care costs account for the lion's share of the spending increase. Funding constraints in the work support programs with fixed block grants (SCHIP and child care), state matching requirements, and federal administrative oversight vary across the programs and create unique challenges for states.
• Considering only the non-tax benefits in this set of work supports, most low-income working families (those with income below 200 percent of the federal poverty level) receive only one support or none at all. About 5 percent of all low-income working families with children younger than 18 receive all three benefits (Medicaid, food stamps, and help paying for child care). Even among the working poor (income below 100 percent of the federal poverty level)—families most clearly within the income eligibility ranges of all programs—25 percent receive no support, and only 7 percent receive all three supports.
• Receipt of non-tax benefits also varies across families by work hours. Poor families with at least one full-time worker are less likely to get help than families with a moderate or minimal work attachment. For example, about 5 percent of working poor families with at least one full-time (at least 1,800 hours), full-year worker receive all three supports, compared with 11 percent of families with parents working fewer hours and no parent working full-time.
• The EITC, in contrast, reaches a large share of low-income families. More low-income families are eligible for the EITC than any other work support. Assuming that eligible families take the tax credit, many working poor families receive the EITC alone (23 percent), the EITC combined with Medicaid and food stamps (31 percent), or the EITC with Medicaid (25 percent). Still, only 7 percent of working poor families receive all four work supports.
• Receipt of tax and non-tax work supports also varies across family characteristics. Single mothers and citizens are more likely to receive supports than married parents and noncitizens. The results also demonstrate the continuing strong connection between receipt of work supports and welfare. About 25 percent of working poor families with a current or recent connection (in the past two years) to welfare receive the entire package of support, compared with 6 percent of families without a welfare connection.
• A review of numerous studies shows some important similarities and differences among factors that explain variations in participation rates for families eligible for work supports. Some common individual characteristics that explain below-average participation include noncitizen status, low education level, and lack of knowledge about program rules. The ages of children can matter, with younger children more often participating in Medicaid and non-infant, preschool-age children receiving care subsidies more often than school-age children. Studies also confirm that income and potential benefits affect participation. As one would expect, families eligible for larger benefits (usually eligible families with the lowest incomes) are more likely to seek help than others.
• Important institutional features that affect program participation include funding and whether a program guarantees benefits to families that meet eligibility criteria. The child care subsidy and SCHIP programs are capped block grants with required state contributions, while food stamps, Medicaid, and the EITC are entitlements funded by the federal government either entirely or, in the case of Medicaid, with a state match requirement. As a result, in tight budget times, states may cap participation in child care subsidies and SCHIP, freeze enrollment, or discourage participation in other ways.
• Research studies also demonstrate that local office procedures and enrollment processes can make a large difference in participation. Recent changes simplifying Medicaid eligibility for children, for example, played a role in increasing program participation. Waiving requirements for face-toface interviews and moving intake away from a welfare office also seem to increase participation. Also, numerous studies show that programs with delivery systems friendly to working families—office hours outside regular work hours, a "pro-participation" attitude, and the availability of translators—increase participation. Studies also demonstrate that procedures requiring onerous documentation can reduce participation among eligible families.
• Some recent state initiatives, welfare-to-work experiments, and innovations reaching children eligible for Medicaid/SCHIP and child care subsidies provide valuable lessons. States that coordinate their work support delivery systems show that higher participation can be achieved without risking higher payment errors. Recent experiments show that delivering a package of supports that includes health insurance, child care subsidies, and a wage supplement (similar to the effects of families receiving all the benefits in the current work support system) can increase work effort, decrease poverty, and increase the well-being of younger children. Even more narrow innovations that link participation across programs for low-income families can increase participation.

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