Association for Public Policy Analysis & Management

Objective: The Medicare as Secondary Payer (MSP) legislation was enacted by Medicare in 1983 to reduce the effects of public insurance crowd-out, by requiring more individuals to remain on the private health insurance market. This legislation specifically requires employers with at least 20 employees to cover Medicare-eligible individuals under an employer-sponsored insurance (ESI) plan. Medicare serves as the secondary payer for health care expenses – only paying for services not covered by the ESI plan (but covered by Medicare). The MSP legislation has been largely ignored in the health services literature, but the effect of this policy on labor and reducing Medicare crowd-out, is more important than ever, given the high number of baby boomers aging into this demographic. This study provides estimates of the number of individuals affected, and evaluates the effect of the policy on both labor and health outcomes, including hours worked per week, annual income, health utilization, and health expenditures.

Study Design:The labor outcomes analysis relies on a harmonized version of the CPS dataset – the IPUMS-CPS from 2000-2016, which contains both the basic monthly survey, and the Annual Social and Economic Supplement (ASEC) component, with labor supply variables. The study employs a regression discontinuity framework to examine the outcomes for employed individuals in firms just above and below the cutoff for the mandate. Employed individuals working in firms with over 20 employees and under 50 employees, are above the cutpoint, and subject to the policy while those working in firms below 20 employees comprise the control group. For the health expenditure analysis, the health and retirement survey was used to examine the effect of the mandate on total medical and prescription costs, as well as the number of office visits, inpatient stays, and prescriptions filled, controlling for number of demographic characteristics, income, and health status. The study focuses on the population of currently employed, U.S. adults, aged 60-69 for both the labor outcomes analysis and the health utilization and expenditures analysis.

Findings: For the labor supply outcomes, the findings show an increase in 1.2 hours worked per week (p<0.5) for those subject to the policy, and a decrease in annual wages per year by $260.85 (p<0.5). The findings related to health utilization and expenditures show that the effect of the policy is not statistically significant for the use of health services, or total health care expenses.

Conclusions: These results suggest that the MSP legislation does have some distortionary effects on labor supply. Preliminary work looking at the heterogeneous effects of the policy shows that these effects may be stronger for individuals who cover their spouses on their policy. The legislation does not however, have a direct impact on utilization or health care expenditures for individuals.

Implications for Policy: Understanding the labor and health effects of the MSP mandate will be important for designing future policies aimed at reducing nisurance crowd-out, particularly with the changing age structure in the US, and increasing number of individuals who continue to work over the age of 65.