Panel Paper: Do Children on Medicaid Benefit from a Weak Labor Market? Evidence from the Great Recession

Thursday, November 7, 2019
I.M Pei Tower: Majestic Level, Vail (Sheraton Denver Downtown)

*Names in bold indicate Presenter

Jiajia Chen, University of Illinois, Chicago

More than 40 percent of children in the U.S. have public health insurance coverage through Medicaid and the Children's Health Insurance Program (CHIP). Despite having health coverage, low-income children’s access to physician services is believed to be restricted. In this paper, I examine the access to care among Medicaid enrollees by exploiting plausibly exogenous changes in the demand for physician services among privately insured patients to investigate whether these demand changes affect the quantity of care received by Medicaid enrollees.

Using administrative micro data on Medicaid claims and changes in local unemployment rates induced by the Great Recession, I estimate the association between weak labor market conditions and the quantity of office-based services received by children enrolled in Medicaid. I find that, relative to the baseline period, children receive more services in areas with a higher level of unemployment. In addition, the positive association between unemployment and use of care is larger in areas with more generous physician payment. The empirical association is found even after restricting the sample to children who are always enrolled in Medicaid and from regression models that include individual fixed effects. This robust finding suggests that the relationship between the unemployment rate and use of physician services is not driven by recession-induced enrollment and changes in the composition of the sample.

The positive association between unemployment and use of care could reflect either demand factors such as worsening health among Medicaid recipients or supply factors such as changes in physicians’ willingness to accept Medicaid patients. To understand the mechanism, I conduct separate analyses by type or place of providers. The supply-side responses to changes in demand apply most clearly to profit-maximizing physicians. One would thus expect the supply-side effects to be absent, or at least, weaker for providers who are salaried or employed in the non-profit sector. Alternatively, if the patient-side forces play a more dominant role, the increased demand for medical services would suggest an overall rise in all provider visits, irrespective of place of services or type of providers. I found that the association between macroeconomic conditions and the quantity of care differs by the type of providers or place of services. While there is a positive association for office-based visits, the unemployment rate is negatively related to the quantity of office visits received in clinics and other settings. The patterns lend support to the physician, supply-side explanation: higher unemployment reduces the demand for physician services by privately insured patients, and physicians respond to the demand shock by providing more services to Medicaid enrollees.

Interestingly, the increased visits to office-based, private practice physicians are offset by a decline of provider visits in other settings. As a result, the overall use of outpatient services did not change too much with respect to changes in the unemployment rate. This finding highlights that private practice physicians and “public” providers serve as a substitute for each other in the context of primary care.

Full Paper: