In response to strict wage controls during World War II, employers started offering health insurance to attract top talent. This shotgun marriage of health care and the labor market created a public policy Gordian knot — full of benefits, but also packed with tough tradeoffs.
Economists view good health as a form of human capital, much like education — an investment people make to become happier and more productive. Like education, good health requires present-day costs (turning down a cookie, sore muscles from the gym, or enduring a colonoscopy), but it pays off in the long run. Healthy individuals are typically more productive, and those with education and stable jobs can invest more in their health. The connection between work and health can fuel a virtuous cycle.
But that cycle can spin the other way. Because most Americans get health insurance through their jobs, losing employment often means losing access to health care.
Americans are a generous people. Emergency rooms can’t turn people away, even if they can’t pay. But ERs are expensive and poorly equipped for preventive care, dental visits or managing chronic conditions. That’s why, in 1965, the federal government launched Medicaid — a joint program with the states to provide health insurance for those in poverty — as part of President Lyndon Johnson’s Great Society.
Measuring Medicaid’s effect on health and labor isn’t as simple as comparing patients with Medicaid to those with private insurance. People who qualify for Medicaid often face complex economic and social challenges, in addition to medical ones. Ideally, researchers would use a randomized controlled trial — just like they would when testing a new drug. In this thought experiment, we would randomly split similar applicants so that that a potential treatment group (those who receive Medicaid) would be identical to those who do not. Thus, the only difference between the two populations in this hypothetical trial would be access to insurance.
In 2008, Oregon gave researchers exactly this opportunity. When the state decided to expand coverage, there were more needy families who applied than slots that funding would permit. Officials used a lottery to allocate the slots. This allowed for an apples-to-apples comparison. The results? Medicaid increased the use of primary and preventive care, improved financial stability and significantly boosted mental health, although it didn’t appear to affect earnings or job participation. Other research shows Medicaid coverage for expectant mothers leads to healthier babies.
Still, Medicaid isn’t without concerns. First, it is expensive. The federal government issues block-grant funding to state governments which (while following strict guidelines) are given some leeway how to execute the program. Thus, the program can look different from state to state. Transitioning people away from the ER and to a primary care physician who can offer personalized and consistent guidance can lower costs over time.
One major issue is making sure able-bodied recipients participate in the labor market. As workers earn more and cross the eligibility threshold, they risk losing their health insurance — creating a “benefits cliff” that may discourage promotions or job changes.
The currently debated “Big, Beautiful Bill” includes work requirements to potentially address this concern. Work is vital — it brings purpose and can lead people out of poverty. But the devil is in the details. Past experience with work requirements in Arkansas and with other safety-net programs like SNAP (Supplemental Nutrition Assistance Program) shows that complex employment verification systems can backfire. They often block access to benefits without boosting employment. In fact, who answers the phone at the aid office can determine whether someone receives help.
These policies can also can complicate job choices. A hairdresser working from home may struggle to prove her hours, while someone at a fast-food job faces fewer hurdles. Seasonal workers like those at a ski resort may miss out on coverage during their job transition. Gig workers and the self-employed who are paid in cash might lack formal documentation. In effect, work requirements could unintentionally discourage entrepreneurship — the very kind of effort that helps lift people out of poverty.
Instead of hard cliffs, policymakers could smooth the transition. One option is to extend Medicaid support through empowering and expanding premium support for private health insurance via the health care exchanges using a sliding scale. The Affordable Care Act allows these exchanges but access differs by state. A sliding scale instead of a cliff may help. If someone earns an extra dollar, they might lose a few cents in benefits — not their entire coverage. The Earned Income Tax Credit works this way, successfully encouraging work while supporting those in need.
Health is central to our wellbeing — not just as workers, but as people. And providing health coverage for all Americans is a complex problem with no easy solution. Every policy decision sends ripples through the system. Thoughtful, well-designed reforms can offer a hand up. But complex rules risk adding layers of bureaucracy that block access to care and undermine good intentions.