December 2013

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Executive Summary

Nutrition assistance programs help reduce the gap between low wages and basic family needs. They are also an important work support intended to help families stay healthy and move towards economic independence. However, just when some families become more self-sufficient by earning even a modest increase in income, their progress can lead to termination of assistance benefits. This creates a gap between basic expenses and total family resources. Families suffer a substantial net loss by earning more, and struggle, yet again, to buy groceries. In the policy world, this is called the “cliff effect”—it shows that rather than a steady climb to economic independence, families “fall off a cliff” when they try to climb higher.

Why would earning more make it more difficult for families to pay for basic living expenses? Because the assistance was cut off or reduced too quickly.

We see the effects of this cliff on a regular basis in our clinics and emergency rooms. Among almost 22,000 families with children under age four in the multi-state Children’s HealthWatch dataset, we found that of families who reported they increased their income, 14 percent lost their Supplemental Nutrition Assistance Program (SNAP) benefits entirely and 10 percent had their SNAP reduced. Some might think that this means the system is working as it should—but we see the stark health consequences of the cliff: despite increases in income, family economic hardship increased, and young children’s health and development suffered.

Compared to young children in families consistently receiving SNAP, young children in families that experienced a loss or reduction of SNAP benefits due to an increase in income were more likely to be:

• Food insecure
• In poor health
• At risk for developmental delays

In some cases, children in families whose benefit was reduced had worse health outcomes than those who completely lost their benefit, potentially because the income increase was very small or temporary, yet the SNAP benefit reduction significantly constrained the family budget. This result underscores the health consequences of squeezed family resources, creating a situation in which families must make terrible decisions between paying for some basic needs over others.

Compared to young children in families consistently receiving SNAP, young children whose families’ SNAP benefit was reduced were more likely to be hospitalized and their families were more likely to forego needed health care due to cost.

Key Terms and Definitions

• Household Food Insecurity: Inadequate access to enough nutritious food for all household members to lead an active and healthy life.
• Child Food Insecurity: The most severe level of food insecurity; occurs when children experience reductions in the quality and/or quantity of meals because caregivers can no longer buffer them from inadequate household food resources.
• Economic Independence: Based on the Self-Sufficiency Standard, it is having enough money to meet basic needs without subsidies of any kind. Unlike the federal poverty standard, the Self-Sufficiency Standard accounts for the costs of living and working as they vary by family size and composition and by geographic location. 

Policy Solutions

Federal and state policy solutions that can address the cliff effect and help families achieve economic independence include:

• Improving the SNAP calculation to accurately reflect real costs of living, including costs of housing, health care and healthy food. Specifically:
  • Removing the limit on shelter costs
  • Expanding the medical deduction to all households
  • Changing to the Low-Cost Food Plan as the basis for maximum SNAP benefits 
• Creating a more gradual and coordinated decline in benefits across programs
• Increasing eligibility limits, removing asset tests to encourage economic independence
• Accounting for income fluctuations by calculating income over a longer period of time and encouraging longer recertification periods

Pulling the rug out: the cliff effect puts families at risk

Public assistance programs help to reduce the gap between low wages and everyday family needs and act as important work supports that help families move towards economic independence. However, when working families increase their income even by small amounts and find their public assistance benefits completely cut off or significantly reduced as a result, dramatically dropping the total financial resources of their household, this disproportionate benefit loss or reduction is known as the “cliff effect.”

Children’s HealthWatch investigated the impact of the cliff effect on young children in families who participate in the Supplemental Nutrition Assistance Program (SNAP). We found that the SNAP cliff effect can increase family economic hardship, putting children at substantially greater risk of poor health, developmental delays and food insecurity. Food insecurity, inadequate access to enough nutritious food, is a known child health hazard. Food insecurity increases the likelihood of fair or poor health, hospitalizations, iron-deficiency anemia, and developmental delays for young children. Child food insecurity, when parents are unable to buffer their children from inadequate household food resources, increases the severity of these outcomes. They also have significant costs both to the individual families and to society, driving up health care expenditures. Just one pediatric hospitalization costs an average of $5,000-6,000 depending on geographic region. In total, food insecurity and hunger cost the United States at least $167.5 billion per year.

SNAP sustains children’s food security and health

Children’s HealthWatch has previously shown that SNAP participation promotes child health, growth, and development by helping families afford a nutritionally adequate diet. Others have shown SNAP’s important effects on improving dietary quality and reducing food insecurity, obesity, poor health, and adult diabetes and cardiovascular disease when received in childhood. Families lose this protection when their SNAP benefits are cut off or reduced due to an income increase from a job, household size changes, receipt of tax credits, child support, or disability benefits. To understand the impact of the SNAP cliff effect on the health of young children, Children’s HealthWatch sorted families in our sample into three groups:  

• Consistent SNAP receipt: families received SNAP benefits at the time of interview and had no decrease in their benefit amount in the past year 
• Loss of SNAP benefits: families reported loss of all SNAP benefits in the past year because their earnings increased, employment changed, household size changed and led to an income increase, or assets were too high 
• Reduced SNAP benefit: families reported a decrease in the amount of SNAP benefits in the past year because of an increase in their earnings, TANF benefits, child support, or the receipt of SSI, or foster care pay

Children’s HealthWatch sampled five cities in this research. Families were interviewed in Baltimore, MD, Boston, MA, Little Rock, AR, Minneapolis, MN and Philadelphia, PA. Of the 21,781 low income families with children under age four, 2,986 (14 percent) experienced a loss of SNAP benefits and 2,227 (10 percent) reported a reduced SNAP benefit. In the group of families that lost SNAP, 93 percent reported someone in the household was employed. Sixty-three percent of the current SNAP receipt group and 79 percent of the reduced SNAP benefit group had at least one employed household member.

Children were harmed both by lost and reduced SNAP benefits

Compared to young children whose families consistently received SNAP, young children in households that lost SNAP benefits were:

• 78% more likely to be child food insecure
• 16% more likely to be in poor health 
• 77% more likely to be at risk for developmental delays

Compared to young children whose families consistently received SNAP, young children in households whose SNAP benefit had been reduced were: 

• 55% more likely to be child food insecure 
• 36% more likely to be in poor health 
• 70% more likely to be at risk of developmental delays 
• 12% more likely to be hospitalized

The reduction or loss of SNAP also affected family well-being by increasing the likelihood that the household would struggle to pay for food and heating and other utilities or have to forego needed health care for family members. For example, caregivers who reported a reduced SNAP benefit due to increased income for were 30% more likely to forego seeking health care for themselves or another family member due to the cost of medical expenses than those who consistently received SNAP.

The cliff effect discourages economic independence

Earning more should always be considered a positive step toward economic independence and better health. However, due to the regulations of public assistance programs, including SNAP, child care subsides, and public health insurance, a boost in income does not always ensure that a family has more resources. Since even a modest increase in income could lead to a loss of or significant reduction in benefits, dramatically reducing overall income, families could be forced to make tough decisions, such as refusing a pay raise, promotion, more hours on the job, or additional resources, such as child support. Ultimately, these difficult situations make it harder for families to become economically independent.

A family whose benefit has been completely cut off will likely struggle. In more hidden and equally precarious circumstances are the families whose benefit was reduced, underscoring real, human impacts of squeezed resources and the terrible trade-offs between basic needs. These families must live with fewer resources and are generally not eligible for other help, causing them to juggle payment of essentials bills for heat, housing and food on an even smaller budget than before. Young children are very sensitive to any change in their environment and deprivation takes a quick and dramatic toll on their health and development. 

Policy Solutions

Improve the SNAP calculation to accurately reflect real costs of housing, health care and healthy food

Incorporating realistic household expenses into the SNAP calculation would lead to a benefit slope instead of a cliff. This would support families in paying for basic expenses, accessing a healthy diet, and ultimately promoting their children’s well-being. Currently, the SNAP benefit calculation does not reflect several real costs faced by families. SNAP is quite unique compared to other assistance programs in that it determines benefits based on income and expenses –basing the allotment on how much money is theoretically left over for purchasing food after paying for other key household expenses. Generally speaking, those with higher costs of living receive a greater SNAP benefit. However, there are flaws in this design.

• Remove the limit on shelter costs: The federal SNAP rules place a limit on the amount of shelter costs (rent/mortgage plus utilities) households can subtract from their income, resulting in a lower SNAP benefit. For example, in states such as Massachusetts, housing costs are much higher than the arbitrary limit. This cap on total shelter expenses means that the true cost of housing for the household is not reflected in what they are allowed to deduct from their income. In turn, this produces an inflated assumption about how much money the household can contribute to their food budget. In the 2008 Farm Bill, a similar cap on dependent care (e.g. child care expenses) was removed in recognition of these very same issues. Removing the shelter cap would create a more accurate reflection of household spending on housing and improve the SNAP calculation.

• Expand the medical deduction to all households: Further, the federal SNAP rules only allow individuals who are disabled (defined as receiving a disability-based benefit) or elderly to claim out-ofpocket medical expenses. However, all households incur a range of out-of-pocket health care expenses not covered by Medicaid or other insurance programs. For example, children with special health care needs, such as asthma, can incur extra costs for appointment copayments, medicines, and breathing emergencies. In fact, as families increase their income, health costs often increase as they move onto private insurance. Expanding the medical deduction to all households would better align SNAP benefits with expenses of daily living.
  
  
• Adopt the Low-Cost Food Plan as the basis for maximum SNAP benefits: The Institute of Medicine, Children’s HealthWatch, and others have shown that SNAP is based on outdated assumptions about the real cost of a healthy diet. Fruits, vegetables and lean meats are more expensive than cheaper, more calorie-dense foods, yet the market basket of food used to calculate the maximum monthly SNAP benefit (called the Thrifty Food Plan) does not adequately take this into account. Therefore, the expectation for what can be purchased with SNAP leads to benefit amounts that do not sufficiently support families in purchasing healthy food options. Following a decrease in SNAP benefits which took effect in November 2013**, the average SNAP benefit provides $1.40 per person per meal. Adopting the Low Cost Food Plan would bring the market basket in line not only with the most updated nutrition guidelines but also with more realistic costs of food, in turn supporting SNAP participants in purchasing a healthier diet.

Create a more gradual and coordinated decline in benefits across programs

Work supports should gradually phase out as family incomes rise in order to avoid being ‘penalized’ for accepting raises or promotions. When designing program policies, thoughtful consideration must not only be given to entering a program but also to exiting it, keeping in mind the potential impact on a family that may not yet be economically independent. Some working families face back-to-back benefit losses or reductions from multiple public assistance programs as they earn more money. Since the cliff effect occurs in many public programs, such as child care subsidies and public health insurance, there is a need to look across programs to determine other unintended consequences related to increasing family income. Increased interaction and coordination between programs is supported in the Affordable Care Act, calling for states to streamline processes for establishing eligibility for health care subsidies and other public assistance programs. Such efforts could create a more gradual and coordinated decline in benefits to encourage economic independence. 

Increase eligibility limits and remove asset tests to encourage economic independence

More than 80% of families with children who receive SNAP include adults who worked in the year prior to or after receiving SNAP. However, many low-income families still struggle to provide enough food for their families even when employed because, in some states, employment puts them over the income limit for SNAP. SNAP calculations should encourage progress toward economic independence, such as savings for emergencies, by removing limits on savings (known as asset tests) and accounting for temporary income increases (e.g. holiday overtime or seasonal work). 

States can choose to put in place rules known as ‘categorical eligibility,’ which accomplish several of these goals by allowing states to raise the gross income limit for eligibility (all applicants must still meet the same net income limit) and to waive the asset test for certain groups, such as families with children, and disabled and elderly households. Without categorical eligibility, many working poor families would be cut off from SNAP.

SNAP Eligibility Limits and Recertification Periods for Households with Children***

FPL: Federal Poverty Level
*Some states have exemptions which allow businesses defined as “small employers” to pay less than the federal minimum wage of $7.25/hour
**Minimum recertification is 4 months; states have the option to extend to 6 or 12 months
***Certification periods, asset tests, and income limits may be different for households in which any or all members are elderly or disabled

Account for income fluctuations by calculating income over a longer period of time and encourage longer recertification periods

Families who earn low wages often have incomes that fluctuate based on seasonal earnings and irregular hours. Peaks and valleys in income not only make it hard to plan a family budget but can also mean difficulty staying connected to programs such as SNAP because the family may appear to be over income one month and yet qualify the next. Unpredictable income can result in reduced or lost SNAP benefits when families must report these temporary earnings to their local SNAP office.

Considering income over a longer period would help to define a more accurate average family income. For example, states could average income over three or more months rather than the current four weeks. In addition, the time period for which families are approved to participate in SNAP (“certification”) varies by state, with a minimum period of four months. Some states have chosen to extend it to 12 months. Longer recertification and lengthened or adjusted reporting periods (the time in which families are required to notify their caseworker about changes in income) reduce paperwork for caseworkers and can help families to bolster and stabilize their income as they continue to make progress towards earning enough to consistently meet basic expenses. 

Conclusion

Research shows that SNAP is very effective in reducing the risk of food insecurity and supporting the health and development of young children. In fact, there is strong evidence that early receipt of SNAP reduces the risk of later “metabolic syndrome” (obesity, high blood pressure, and diabetes) and, for women, boosts their economic self-sufficiency in adulthood. Conversely, children in families that have lost, or experienced a reduction in, SNAP benefits due to increased income are at higher risk for poor health, hospitalizations, developmental delays and food insecurity.

Strengthening SNAP’s structure and funding are essential to smoothing the SNAP benefit slope for working families. Other effective solutions include improving the SNAP calculation to accurately reflect key family expenses, introducing more gradual, cross-program coordination in the decline of benefits, expanding income eligibility and removing asset limits, accounting for income fluctuations, and maintaining longer recertification periods. Creative, real-world policy solutions that provide for upward mobility and security, where everyone has an equal chance to succeed in our economy will help ensure that families who increase their income are still able to afford everyday needs like food, child care, health care and housing for their children while making strides toward economic independence.