A benefits cliff is a phenomenon that occurs when a person's income increases, causing them to lose eligibility for certain benefits. This can result in a net decrease in income or a significant reduction in benefits, which can create a financial disincentive for individuals to increase their income or work more hours. The biggest sources of North Carolina’s benefits cliffs are the Childcare Subsidy program, the Medicaid program, and the Supplemental Nutrition Assistance Program (SNAP).

North Carolina’s Most Common Benefits Cliffs

In North Carolina, there are several benefits cliffs that impact low-income families. Addressing these cliffs through policy changes, such as gradually phasing out benefits as income increases, can help alleviate the negative impacts of benefits cliffs and encourage economic mobility for low-income families in North Carolina.

North Carolina’s Childcare Subsidy Cliff

The Childcare Subsidy program helps low-income families pay for childcare. If a family's income exceeds 200% of the federal poverty level ($53,000 for a family of four), they lose eligibility for the program. This creates a benefits cliff where families may not be able to afford childcare without assistance, but their income is too high to qualify for the subsidy.

North Carolina’s Medicaid Cliff

North Carolina's Medicaid program provides health insurance to low-income individuals and families. If a person's income exceeds 138% of the federal poverty level ($36,156 for a family of four), they lose eligibility for Medicaid. This can create a situation where individuals or families cannot afford private health insurance but earn too much to qualify for Medicaid.

North Carolina’s Food Stamps Cliff

The Supplemental Nutrition Assistance Program (SNAP), also known as food stamps, provides assistance to low-income families to purchase food. If a family's income exceeds 130% of the federal poverty level ($34,840 for a family of four), they lose eligibility for SNAP. This creates a benefits cliff where families may struggle to afford enough food without assistance, but their income is too high to qualify for SNAP.

Business Impact of North Carolina’s Benefits Cliffs

There is limited data available on how benefits cliffs specifically impact employers in North Carolina, but as trends in other states have shown, benefits cliffs can indirectly impact employers by creating barriers for low-income workers to enter and remain in the workforce. Addressing benefits cliffs through policy changes can help promote economic mobility for low-income workers and improve outcomes for employers as well.

North Carolina Cliffs and Workforce Participation

When workers face benefits cliffs, they may choose to work fewer hours or decline a pay increase in order to maintain their eligibility for certain benefits. The result is a smaller pool of available workers for employers, which can lead to labor shortages and difficulty filling open positions. Additionally, workers who are unable to access affordable childcare or healthcare may experience more absences or lower productivity, which can impact the overall productivity and profitability of a business.

North Carolina Cliffs and Employee Benefits

Employers may also be impacted by the cost of providing benefits to their employees. In cases where workers are no longer eligible for certain government assistance due to an increase in income, employers may need to provide additional benefits or compensation, such as more paid time off or higher wages, to help employees bridge gaps in their finances or cover healthcare or childcare costs.

Policy Approaches to North Carolina’s Benefits Cliffs

North Carolina has been considering welfare reform efforts for several years, with a focus on improving economic mobility for low-income individuals and families. In 2018, the state introduced the 'Work First' program, which emphasizes work as a pathway out of poverty and provides job training and support services to help individuals find and maintain employment.

Overview of North Carolina’s Welfare Reform Efforts

Work First Program: In 1996, North Carolina implemented the Work First Program, which provides temporary cash assistance and employment services to eligible families with children. The program requires participants to engage in work-related activities, such as job search, training, or community service, as a condition of receiving benefits.

Time Limit on Benefits: North Carolina limits the duration of cash assistance under the Work First Program to 24 months, with some exceptions. This time limit is intended to encourage participants to become self-sufficient and reduce their reliance on government assistance.

Child Care Subsidies: North Carolina offers child care subsidies to low-income families who are working or participating in education or training programs. These subsidies help families access affordable and high-quality child care, which can improve parents' ability to work and support children's academic and social outcomes.

Medicaid Expansion: In 2021, North Carolina expanded Medicaid eligibility to cover low-income adults who earn up to 138% of the federal poverty level. This expansion is expected to increase access to healthcare for hundreds of thousands of North Carolinians and improve health outcomes.

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