Using the Medicare buy‐in program to estimate the effect of Medicaid on SSI participation

AARON S. YELOWITZ [*] This article assesses the importance of receiving supplemental health insurance on participation in Supplemental Security Income (SSI) for the elderly. The implementation of the Qualified Medicare Beneficiary (QMB) program offered a substitute for Medicaid, and expanded health insurance eligibility to a higher income level. Using a sample of elderly respondents aged 66 to 75, I find that the QMB program reduced SSI participation. More than half of the QMB participants were previously covered by SSI and Medicaid. The calculations suggest that the QMB program was not as expensive as it might first appear because of reductions in SSI expenditure. (JEL H53, 138, J14) I. INTRODUCTION The Supplemental Security Income (SSI) program in the United States provides assistance to elderly, blind, and disabled individuals who are poor. It is federally financed and administered by the Social Security Administration. Although much more attention has been focused on the former Aid to Families with Dependent Children (AFDC) program, which primarily targets poor single-parent families, more money was spent on cash relief for SSI recipients in 1993: $23.6 billion compared to $22.3 billion. [1] In addition to cash, SSI recipients receive supplemental health insurance coverage for Medicare, similar to private Medigap policies, through the Medicaid program. This provides a second important benefit to SSI recipients: in fiscal year 1993, Medicaid expenditure for elderly, categorically needy SSI recipients amounted to $14.1 billion. [2] Several studies have examined the importance of health insurance for working-age adults in the labor market. [3] In addition, the effects of recent Medicaid expansions for younger populations have been extensively studied. [4] Little is known, however, about the quantitative importance of Medicaid on the SSI participation of the elderly. The key obstacle in assessing this effect is that, until recently, Medicaid eligibility had been closely related to SSI eligibility in most states. This study analyzes the introduction of the Qualified Medicare Beneficiary (QMB) program, enacted in different states from 1987 to 1992, which offered supplemental health insurance coverage to the elderly without the need to participate in SSI. The QMB program offered some of the same Medicare cost sharing benefits that an elderly SSI recipient would receive from Medicaid, including the payment of Medicare premiums, deductibles, and copayments. [5] Moreover, the QMB program expanded Medicaid coverage to individuals with higher inc omes and assets than the SSI program. [6] The primary goal of this article is to document the link between the QMB program and the decision to participate in SSI. I find that raising the income limit in QMB program significantly reduces SSI participation, particularly among African-Americans and the less educated. The coefficient estimates suggest that, in the absence of the QMB buy-in program, SSI participation would have been 45% higher in 1992 than it actually was. The caseload growth in the elderly SSI population would have looked very similar to the caseload growth of the disabled 851 population, a group not eligible for QMB. In addition, the QMB program was considerably less expensive than one would infer from simply calculating the increased health care expenditure because of reductions in SSI expenditure for cash benefits. The rest of the article is arranged as follows. Section II outlines some relevant features of the SSI, Medicaid, and QMB programs. In particular, it reviews how the income eligibility limits for QMB and SSI are computed. The difference between those limits is a measure of how closely are Medicaid and SSI linked. It will subsequently be used as the key independent variable in the regression analysis. This section also shows the cross-sectional and time-series variation in the QMB program. Section III models the potential effects on SSI participation of the introduction of the QMB program, and considers the role of information. …