Crowd-in: the effect of private health insurance markets on the demand for Medicaid.

As eligibility for public health insurance expands, individuals may drop private insurance coverage and switch to public insurance. This problem, known as crowd-out, has been a key issue in debates regarding the expansion of Medicaid to women and children living above 100 percent of the federal poverty level (FPL) (Cutler and Gruber 1996; Dubay and Kenney 1997; Shore-Sheppard, Buchmueller, and Jensen 2000; Long and Marquis 2002; Lo Sasso and Buchmueller 2004). Rather than strictly reducing the number of uninsured, in the presence of crowd-out, increases in Medicaid eligibility shift the burden of health care coverage for the working-poor from employers to federal and state governments. In this paper, I consider the opposite effect—“crowd-in.” Specifically, I examine how changes in the availability of employer-provided health insurance and local labor market conditions (i.e., unemployment rates, employment opportunities, and earnings expectations) influence exits from the Medicaid program. As the crowd-out literature shows, public health insurance and private health insurance are good substitutes for at least some low-income consumers. Thus, not only should changes in the structure of public health insurance affect the take-up of private health insurance but the reverse will also be true. Exogenous declines in the availability of employer-sponsored coverage may push people onto Medicaid, whereas expansions in private coverage may pull people off the Medicaid program. As a result, Medicaid caseloads and expenditures will be sensitive to changes in the availability of employer-sponsored insurance coverage and structural changes in the economy that affect the rate of coverage through employer-sponsored plans (e.g., the movement of jobs and workers from the manufacturing sector to the service sector, or from unionized employers to small businesses). In other words, it is not just the growth in jobs that will affect the dynamics of Medicaid participation but the growth in jobs with health insurance. Few articles have examined the dynamics of Medicaid participation and none has modeled the relationship between the duration of Medicaid spells and local labor market conditions (Cromwell et al. 1997; Berger and Black 1998; Short and Freedman 1998). Studies of participation in public assistance programs have focused primarily on welfare cash assistance programs (e.g., temporary assistance for needy families [TANF] or the former aid for families with dependent children [AFDC] program). As a result, we know little about the duration of Medicaid spells in contrast to welfare spells. Although Medicaid has always covered a much larger population than welfare and Medicaid spells have never been completely contemporaneous with welfare spells, welfare reforms enacted under the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) further decoupled the two programs (Kronebusch 2001). For these reasons, it is increasingly important to have baseline data on Medicaid dynamics from which to analyze the effects of welfare reforms. Moreover, data on the effects of local labor market conditions and changes in private health insurance coverage on Medicaid are essential for forecasting caseload and expenditure growth. No studies have modeled the relationship between local labor market conditions and the duration of Medicaid spells. But several studies on welfare participation suggest the relationship could be significant (Moffitt 1992, 2003; Bane and Ellwood 1994). Most importantly, research on the dynamics of welfare participation suggests that the relationship between labor market conditions and public assistance participation is best studied at a local, county level rather than at a state level. State-level analyses of labor market effects on public assistance participation have been inconclusive (O'Neil, Bassi, and Wolf 1987; Blank and Ruggles 1996). However Hoynes (2000) and Fitzgerald (1995) both found evidence that local labor market characteristics—measured by county unemployment rates, employment growth, employment to population ratios, average quarterly earnings, and per capita retail sales—significantly influence exits off welfare. Studies of welfare dependency also demonstrate that the availability of public and private health insurance affects the dynamics of public assistance participation and entry into the labor market (Blank 1989a; Ellwood and Adams 1990; Moffitt and Wolf 1992; Yelowitz 1995). In part, research on the dynamics of Medicaid participation has been hindered by the lack of longitudinal data. In this analysis, I use a unique database that merges monthly data on a large sample of Medicaid participants in California with monthly data on county labor market characteristics over a 9-year period (1987–1995). No other data on public assistance participation provide such extraordinary breadth and depth of information on Medicaid participants. With these data, I estimate a discrete duration model where the monthly exit probability is a function of demographic characteristics, Medicaid benefit characteristics, local labor market conditions, the availability of employer-sponsored insurance, and fixed time and county effects.