Medicaid provides health insurance coverage and financial protection to 60 million Americans.  The Census Bureau’s new research supplemental poverty measure (SPM) subtracts out-of-pocket medical expenses (including premiums) in its calculation of family resources, while also adding in the value of tax and in-kind transfer programs such as the Supplemental Nutrition Assistance Program and the earned income tax credit.  We use this new measure to assess the impact of Medicaid on poverty.  Our objective is to estimate the number of additional Americans who would be defined as poor (< 100% of the federal poverty level, FPL) or extremely poor (< 50% of FPL), in the absence of the Medicaid program.

Using the Current Population Survey, we estimate a national poverty rate under two scenarios.  The first scenario is the status quo, using the SPM as our poverty measure.  The second scenario re-calculates a poverty rate in the hypothetical absence of the Medicaid program, in which those currently covered by the program are either uninsured or in private insurance, with resulting changes in out-of-pocket medical expenditures.  Medical expenditures are drawn from propensity-score matched individuals without Medicaid (matched on age, race, gender, income, employment status, education, health and disability status, and state of residence), using a gamma distribution to model observed spending.  We then calculate net changes in the percentage and number of Americans living in poverty or extreme poverty in the absence of Medicaid, and stratified these results by age and race.

 

We find that eliminating Medicaid would increase out-of-pocket medical spending from $376 to $995 per beneficiary, and increase poverty rates by 1.5% among children, 2.6% among disabled adults, and 1.1% among the elderly. Overall, Medicaid kept 2.9 million Americans out of poverty in 2011, making it the U.S.’s third largest anti-poverty program.

We conclude that when out-of-pocket medical expenses are taken into account in defining the poverty rate, Medicaid plays a critical role in poverty reduction for millions of Americans, in all age groups.  The program’s financial impact is most concentrated among the disabled and children, and among racial and ethnic minorities.