Medicaid Income Caps Force Disabled Workers to Choose Between Careers and Healthcare

Erica Carter has built an impressive career as a finance manager for the Omaha Nation school district in Macy, Nebraska, securing grants that fund programs like the seven-acre garden where students earn their first paychecks. Paralyzed from the chest down since her early twenties, the 41-year-old earned her master’s degree in human resource management and steadily climbed the professional ladder. Her success, however, nearly cost her the healthcare she depends on to survive.

In November 2023, Carter received a letter from Iowa’s Department of Health and Human Services that threatened to upend her life. Her annual salary of $110,000 exceeded Iowa’s income limit of $36,450 for working people with disabilities who receive Medicaid. The state gave her just two weeks to decide between her career and her healthcare coverage.

“I had no time at all to prepare,” Carter said. “I had a decision to make.”

Carter’s dilemma exposes a fundamental flaw in Medicaid policy that disability rights advocates say punishes success and traps people with disabilities in poverty. She participates in Iowa’s Medicaid for Employed People With Disabilities, a buy-in program that allows working disabled residents to pay part of their income to maintain Medicaid benefits. Forty-seven states offer similar buy-in programs, yet most restrict eligibility through strict limits on income and assets that effectively create a ceiling on career advancement.

The Work Requirement Paradox

States across the country are scrambling to implement a new federal requirement that forces many Medicaid recipients to prove they work, volunteer, or study at least 80 hours per month. Politicians frame these requirements as promoting self-sufficiency, but people with disabilities argue the existing policies accomplish precisely the opposite. Current income caps force them to choose between working and receiving the medical benefits that enable them to work in the first place.

The contradiction has sparked growing frustration among disabled workers who want to contribute to the economy but face punitive measures for doing so successfully. Advocates point out that policies intended to encourage work instead create perverse incentives that discourage career growth, wage increases, and financial security. Workers must constantly monitor their earnings to avoid crossing arbitrary thresholds that would trigger benefit loss, regardless of their actual medical needs.

For years, disability rights advocates have pushed state legislatures to eliminate or raise these limits, arguing they prevent people from accepting raises or building savings. The fear of losing crucial medical benefits keeps many disabled workers artificially suppressing their earning potential. Massachusetts, Minnesota, New Jersey, and Rhode Island have eliminated such limits over recent years, demonstrating that states can reform these policies without fiscal catastrophe.

Economic Incentives and Labor Force Participation

The problem extends beyond individual hardship to broader economic implications. Since the turn of the century, the United States has witnessed slower growth in population, labor force participation, and hours worked. The Congressional Budget Office reports that growth of the potential labor force falls below previous estimates, while the Bureau of Labor Statistics notes declining trends over more than a decade.

Economists including Casey Mulligan, Professor of Economics at the University of Chicago, have examined how government policies diminish the financial “reward of work” – the monetary returns one receives for work effort. Over the last half-century, many programs intended to improve well-being for vulnerable populations have inadvertently hindered upward economic mobility by reducing work incentives through both tax and spending provisions.

These policy structures create what experts call labor market distortions that accumulate across multiple programs. When someone like Carter earns more money through hard work and professional achievement, she faces the prospect of losing healthcare worth far more than her salary increase. This creates an effective marginal tax rate that can exceed 100 percent on additional earnings, making career advancement economically irrational despite being personally and professionally desirable.

The Long-Term Care Connection

The stakes extend beyond routine healthcare. Many people with disabilities require long-term care services that allow them to live independently and maintain employment. Medicaid serves as the primary payer for these services, which can include personal care assistance, medical equipment, and home modifications. Residential care settings provide assistance and protective oversight for those who cannot live alone but do not require nursing home-level care.

Since the mid-1970s, states have had options to use Medicaid to cover services in various care settings. The home and community-based services waiver program, established in 1981, gave states flexibility to provide alternatives to institutional care. These programs recognize that virtually all individuals who need long-term care services prefer to receive them in their own homes, enabling them to participate more fully in their communities and workplaces.

When income limits force people to choose between work and Medicaid, they often sacrifice not just routine medical care but the supports that make independent living and employment possible. This creates a cruel cycle where policies ostensibly designed to promote self-sufficiency instead push people toward dependency and reduced economic participation.

Paths Forward

The low-growth economic environment makes workforce participation increasingly critical. Experts question whether trends toward lower labor force participation represent a permanent “new normal” or whether policy reforms could reverse these patterns. Eliminating Medicaid income caps for people with disabilities represents one concrete step toward reducing barriers to workforce participation.

The states that have already eliminated income limits demonstrate that reform is both feasible and beneficial. These changes allow disabled workers to pursue careers without artificial constraints, contribute more fully to economic growth, and achieve financial security without sacrificing access to medical care. The reforms acknowledge that disability and employment are not mutually exclusive, and that many people with disabilities can work productively when policies support rather than hinder them.

For Carter and thousands of workers like her, the current system forces an impossible choice. Her story illustrates how well-intentioned programs can create unintended consequences that undermine their own goals. As states implement new work requirements, reforming the income limits that penalize success would align policy with principle, allowing people with disabilities to contribute their talents without fear of losing the healthcare that enables them to work.