Effects of the 2013-15 Wisconsin Budget for Low-wage Workers

August 29, 2013

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With Labor Day coming up, this issue brief takes a look at how the last two budget bills are affecting low-wage workers in Wisconsin. It focuses primarily on the effects of the new budget bill (for the 2013-15 biennium), but also examines a few instances of how that bill continues or compounds the challenges for low-wage workers caused by the 2011-13 budget bill. Some of the major effects include the following policy choices relating to health insurance, child care, taxes and unemployment insurance: 

Making health insurance and care much more expensive for many parents now in BadgerCare

The 2013-15 budget bill cuts in half the income eligibility ceiling for adults participating in BadgerCare – reducing that cap from 200% of the federal poverty level to just 100%. That change is expected to cause nearly 90,000 low-income parents and about 5,000 childless adults to lose their BadgerCare coverage, beginning in 2014. 

Although that sharp reduction in eligibility of parents helps the state pay for an expansion of coverage for childless adults below the federal poverty level, the state could have covered even more childless adults and saved state taxpayers nearly $150 million in the 2013-15 biennium by accepting federal health care reform funding and covering adults up to 133% of the poverty level. 

Let’s take a look at how the budget affects a hypothetical low-income family – a single mother who has two children and works full-time for a fast-food chain as a shift manger, making $11 per hour. (There are currently about 3,500 Wisconsin parents who work for large fast food chains and are participating in BadgerCare.) That mother, Sue Smith, is now on BadgerCare, as are her two kids, and because her income is below 133% of the federal poverty level, she pays no premiums and only very modest co-pays for her health care. As a result of the changes in the budget bill, Sue will lose her BadgerCare coverage in January 2014 (though her children will remain covered), and she will have to buy insurance through the new Marketplace that will begin next year. She will have a relatively modest premium, about $440 per year, but will have significant co-pays and deductibles, which could be as much as $2,250 per year. 

Changes the state made to BadgerCare last year have illustrated that even when the state initiated smaller increases in cost-sharing for families with slightly higher income, a substantial percentage found the coverage unaffordable. In July 2012, the state began for the first time to require premiums (but no deductibles or increases in copays) for parents in BadgerCare with income between 133% and 150% of the poverty level. 

The preliminary DHS study of the effects of expanding premiums show a devastating effect for low-income adults between 133% and 150% of FPL. Among the 18,544 parents and caretakers on BadgerCare in July 2012 who were in that income range, only 31% were still on BadgerCare in December. Failure to pay a premium caused 21% of the original 18,544 to lose their coverage within six months; but among those who weren’t disqualified for some other reason during the initial six months, 41% lost their coverage for failing to pay a premium. 

Charging premiums for parents in Transitional Medicaid

The state is seeking a federal waiver that would not only restrict eligibility for BadgerCare, as described above, but would also change another form of Medicaid, known as Transitional Medical Assistance (TMA). TMA is a category of Medicaid that grew out of welfare reform and extends Medicaid eligibility by 12 months for parents who are lifted above the poverty level by a new job or a raise. If federal officials approve that part of the waiver, which would apply premiums to all parents participating in TMA, it would become much harder for parents to move into the workforce and climb out of poverty. Among parents who do climb above the poverty level, many wouldn’t be able to regularly pay the premiums and would lose their insurance coverage. If they became sick, they might need to quit their jobs or reduce their hours in order to get below the poverty level and get into BadgerCare. 

Additional cuts in child care subsidies – adversely affecting accessibility and affordability of care

The budget cuts an additional $31 million over the next two years from the Wisconsin Shares child care subsidy program for low-income working families (on top of large cuts over the previous several years). That cut is likely to adversely affect many low-wage workers by causing more child care providers to drop out of the subsidy program and by indirectly increasing co-pays for parents participating in Wisconsin Shares.

Although the reduced funding level reflects the best available assumptions about program costs, the bill squanders a wonderful opportunity to use the savings to make long overdue investments in the quality and accessibility of early education. For example, even though the Department of Children and Families has acknowledged that it needs to increase the Wisconsin Shares reimbursement rates for child care providers, the freeze on those rates that began in 2006 will be continued until at least January 2014. Although language in the budget bill could allow reimbursement rates to increase for a small subset of providers at that time, that could be difficult to achieve because the bill siphons off funding for Wisconsin Shares and Wisconsin Works (W-2) and makes very unrealistic assumptions about declining participation in W-2.

The bill shifts federal block grant funding for low-income families away from child care and W-2 in order to use it for the state Earned Income Tax Credit (EITC), thereby supplanting state funding for that credit and using those state dollars to build up the state’s General Fund balance. As we have explained elsewhere, that sleight of hand is a “Robin Hood in Reverse” maneuver, because it uses funding intended for disadvantaged families to pave the way for tax cuts that predominately benefit those making more than $100,000 per year.

The cuts to Wisconsin Shares hurt low-income families in several ways. The ongoing contraction of funding is undermining the quality of child care, especially among providers who mostly serve lowincome families. It is causing many providers to drop out of Wisconsin Shares, thereby making it harder for low-income parents to find affordable, regulated care for their children. In addition, continuing the rate freeze creates a widening gap between the subsidies and the cost of care, which increases the share of costs borne by low-income workers.

Continuing last session’s tax increases for low-income households

After the 2011-13 budget increased taxes for many taxpayers – by cutting the EITC and repealing the annual inflationary adjustments in the Homestead Tax Credit – lawmakers failed to use the tax relief in the new budget to reverse those tax increases or to provide any benefit to the lowest income fourth of income tax filers. Instead, the $651 million income tax cut in the 2013-15 budget directs 55% of the tax cut to people making over $100,000 per year, who comprise just one seventh of tax filers.

The combined effect of the last two biennial budgets is that the EITC is now worth $121 less for a single mom with two kids who makes $23,000 per year, and the value of the Homestead credit will be about $170 less in 2015 than it was worth in 2011 for an elderly person with a Social Security income of about $15,000 per year (growing each year at an inflation rate of 2.5%).

Tightening eligibility for unemployment insurance benefits for jobless workers

The bill makes a number of changes in the rules relating to unemployment insurance (UI), despite the fact that those proposals weren’t endorsed by the state’s UI Advisory Council. Those changes include an increase in the work search requirement and other changes affecting eligibility, such as making it easier for employers to dismiss workers without having to pay them UI benefits. Those changes come on top of the one-week waiting period for eligibility, which was imposed by the previous budget bill.

Jon Peacock
August 29, 2013