Panel Paper: The Effect of Public Insurance On the Labor Supply of Childless Adults

Saturday, November 10, 2012 : 9:10 AM
Hall of Fame (Sheraton Baltimore City Center Hotel)

*Names in bold indicate Presenter

Thomas DeLeire, University of Wisconsin, Madison, Laura Dague, Texas A&M University and Lindsey Leininger, Chapin Hall at The University of Chicago

What is the effect of public health insurance coverage of childless adults on labor supply, both in terms of the probability of being employed and the level of earnings in the workforce?  Policymakers, in assessing options for expanding public benefits, are often concerned about the unintended consequences of these coverage options on private insurance coverage and on recipients’ participation in the labor market.  Eligibility for public health insurance coverage may reduce the incentive to remain in or return to the workforce and, among workers, reduce the incentive to increase work hours. This negative effect on labor supply could result from the reduced need for private, employer-sponsored coverage among recipients and because of the real possibility that increased earnings would disqualify them for public coverage.

The ACA is projected to extend health insurance coverage to an additional 32 million people and relies heavily on an expansion of Medicaid to do this – creating a new national income eligibility standard at 138% of the federal poverty level (FPL).  Medicaid expansions are expected to account for about half – 16 million people – of those who by 2019 will become newly eligible for health insurance under the federal health reform, and childless adults make up about 9.6 million of these.  The research literature to date has not been able to examine this important population, as this group is only recently gaining eligibility for Medicaid coverage. Our paper exploits the combination of a unique policy environment and excellent matched administrative data to produce the first causal estimates of the impact of Medicaid expansions on the labor supply of low-income childless adults.

Wisconsin’s BadgerCare Core Plan provides health care coverage to adults with no dependent children (childless adults) who have incomes below 200% FPL. Once enrolled, members receive a managed care benefit package and face only nominal cost-sharing.

Enrollment in the Core Plan started January 1, 2009 for limited groups and opened generally on July 15, 2009.  Application levels for the Core Plan quickly exceeded projections and program budget. Total program enrollment reached a high of 65,057. As a result of this unanticipated demand for the program, an enrollment cap was imposed on October 9, 2009.  Applications received after that date were placed on a waiting list.

We use a regression discontinuity design (Lee and Lemieux, 2010) and administrative enrollment and earnings data to conduct our analysis. In essence, this approach is to compare the labor supply of those who applied just prior to October 9, 2009 (just before the enrollment cap was implemented) with the labor supply of those who applied just after October 9, 2009 (just after the enrollment cap was set).  Importantly, this date was announced suddenly and was imposed due to budgetary reasons and should have been a surprise to applicants. We will take care to determine how sensitive our results are to the number of weeks prior to and following the October 9th cutoff date we include in creating our analytic samples.