Smart Policy Changes Would Alleviate 'Benefits Cliff' Under Increasing Wages

Poor policy design and under-investment in Florida’s safety net should never prevent a working parent from accepting a raise and building a better life for their family, whether that raise comes through a better job opportunity or by way of an amendment to the state constitution. Florida policymakers can address the benefits cliffs by supporting smart policies and bold investments in children and families.

With nearly 70 percent approval in the polls, there is a significant probability that voters will pass Amendment 2, gradually raising Florida’s minimum wage from $8.56 to $15 per hour by 2026. Florida Policy Institute’s recent analysis shows that this will benefit more than 1 in 4 Floridians, as well as boost the economy as working people spend that additional pay locally--bringing demand back to businesses and sales tax revenue back to the state.

One consideration raised by community advocates that is worth exploring is that raising the minimum wage, and rising wages overall, could steepen the so-called “benefits cliff.” A benefits cliff happens when individuals who receive public benefits start earning more income, but still not enough to make up for the loss of benefits as their new pay pushes them over eligibility thresholds. Child care vouchers, the Supplemental Nutrition Assistance Program (SNAP), Medicaid, and Temporary Assistance for Needy Families (TANF) are some of the most relevant programs to this discussion. However, there are common-sense changes state leaders can make to ensure fiscal stability for Floridians struggling to make ends meet.

A Wage Boost Could Give More Families Access to Health Insurance and Free Up State Medicaid Dollars

In terms of Medicaid, it is unlikely that raising the minimum wage would result in an abrupt disruption of benefits for working Floridians. Florida has one of the nation's lowest Medicaid income limits — $6,924 annually for a three-person family — just 31% of the federal poverty level. So, while some families could lose Medicaid with a minimum wage increase, a benefits cliff is less likely, as the corresponding income boost would put Floridians above the poverty level, enabling them to afford employer-sponsored insurance or insurance through the Affordable Care Act (ACA) marketplace. The ACA marketplace provides premium tax credits and cost-sharing subsidies, so families with low and moderate incomes can purchase health insurance. An added benefit: the state would no longer have to pay its share of Medicaid coverage for those families transitioning to marketplace coverage.

Moreover, a minimum wage boost along with Medicaid expansion would eliminate the existing benefits cliff that more than 800,000 Floridians caught in the "coverage gap" currently face. People in the coverage gap have income too high to qualify for Medicaidunder Florida's current Medicaid program, but they do not make enough to get subsidies to purchase insurance through the ACA marketplace. Again, the state could save money through by substituting new federal expansion dollars for state funds currently supporting services like mental health and corrections.

SNAP Policy Design: One Model for Mitigating Cliff Effect

Participants in SNAP are also less likely to face a benefits cliff due, in part, to smart policy choices the state has made about eligibility criteria. By design, SNAP allotments in Florida decline gradually instead of stopping abruptly when a family’s income increases. This is because SNAP allows for participants to work by using a 20 percent deduction for earned income, which reduces SNAP benefits by only 24 to 36 cents per additional dollar earned. This helps to reduce a “cliff” effect. But even more important is the fact that Florida permits families to have incomes of up to 200 percent of the federal poverty level -- rather than 130 percent as ordinarily required under federal law -- before they lose SNAP eligibility altogether. Instead of pushing out families who get raises at work that wouldn’t make up for the loss in benefits, Florida’s SNAP program is explicitly designed to accommodate families whose income remains too low to put food on the table for the entire month.

Lawmakers Should Increase Investment in Early Learning

State lawmakers could improve Florida’s child care voucher program by taking some policy ideas from SNAP.

Families must have income under 150 percent of the poverty threshold to initially qualify for Florida’s School Readiness program, which provides child care vouchers to working parents. Once a family participates in the program, they retain eligibility until their income exceeds 200 percent of the poverty level, which allows for some wiggle room. However, once at this threshold, the fiscal drop-off is steep, as a family loses these vouchers entirely, rather than in a graduated manner like SNAP. Moreover, these vouchers are valuable, but often not enough, as most families end up paying “overage” charges for their child care provider for the difference between voucher value and true cost of child care. (Center-based care for a toddler in Florida averages $8,618, annually.)

Unlike the SNAP program, School Readiness vouchers are not an “entitlement,” meaning they are not a guarantee for all eligible people. In fact, demand for child care vouchers far outstrips supply; as it stands, less than half of eligible Florida families are lucky enough to receive them. Despite a recent infusion from the federal CARES Act, stubbornly long wait lists for child care vouchers persist across Florida. Indeed, in light of recent announcements from major corporations like Disney and Target of wage increases to $15 an hour, the Early Learning Coalition (ELC) of Orange County has identified that more funding for School Readiness and a reevaluation of the eligibility requirements are in order.

Acknowledging this need, the Legislature included language in its last two budgets allowing local ELCs to use a portion of their funding to allow initial eligibility for families making up to 200 percent of the poverty level ($43,440 for a single parent with two children). This pilot should be expanded and coupled with a graduated fee scale for families to eliminate a severe cliff for Florida’s School Readiness program. Additionally, without a significant investment to increase School Readiness funding so that more eligible families can participate, this program will continue to only assist a sliver of eligible families. This infusion would also help to revitalize the child care industry in Florida, which is distressed due to pandemic disruption.

The State Should Increase TANF Payments and Fully Fund Transitional Services to Avoid a Benefits Cliff

As for TANF, the state’s meager payment standard and uncertain funding for transitional services contribute more to a family’s fiscal “cliff” than phaseout eligibility. On the one hand, Florida’s TANF program has generous income disregards that slowly phase out families’ benefits over time. For families who work, Florida disregards the first $200 of earned income plus half of the remainder.

But Florida’s inadequate TANF payment standard, which has not increased since 1992, keeps families out of the program for that reason alone. Because countable net income cannot be higher than the TANF payment standard, many families are ineligible for assistance, even with Florida’s generous disregards. For a three-person family, household income, after disregards, cannot exceed $303 a month.

Former TANF participants who lose assistance due to earnings are, however, potentially eligible for transitional benefits while they get their footing in the workplace. In Florida, families with income at or below 200 percent of the poverty level who lose TANF due to increased earnings may be eligible for up to two years of transitional transportation, child care, and education and training services — but only if funds are available. Transitional Medicaid may be available for up to 12 months, although income in the second six months must not exceed 185 percent of the poverty level.

State lawmakers, by enacting the above policy changes, can help ensure the financial health of families amid increasing wages.