THE MEDICAID EXPANSION AND LABOR MARKET ACTIVITY: EVIDENCE FROM THE AFFORDABLE CARE ACT

The labor market implications of the Medicaid expansion under Affordable Care Act are ambiguous in recent studies. Baicker et al. (2014) and Gooptu et al. (2014) find no evidence of reduced labor supply after a change in Medicaid coverage by contradicting to the job-lock effect found in Garthwaite et al. (2014). This paper distinguishes from previous studies not only on the extent of outcome variables, but also on the grounds of internal validity. I investigate the causal relationship between the Medicaid expansion and labor market outcomes using a data-driven approach. The model allows us to empirically test for the transition between part-time and full-time jobs.

I use the Current Population Survey data due to its large set of variables on labor market outcomes. There are no publicly available data that link health insurance information after the individual mandate to labor market outcomes in the United States. In addition, most of the national survey estimates that are available for the pre-expansion period have measurement errors in program participation variables. In order to estimate the causal effect, I use a sharp regression discontinuity model that assumes nonignorability for the treatment. The assumption can be justified when the upward trend in enrollment growth is taken into account after the individual mandate.

The sample period used in the study is from January 2004 to December 2014 with over 3 million observations. The observations come from the outgoing rotations group that enter into the data multiple times. I use robust-standard errors to correct for the standard errors that come from repeated observations. Supplemental data sets on Medicaid enrollment and eligibility criteria that vary by state and year are obtained from both the Henry J. Kaiser Family Foundation and the Centers for Medicare & Medicaid Services.

On January 2014, the individual mandate required all expanding states, excluding the District of Columbia, to provide insurance for those who are below 138% of the federal poverty level. The number of non-expansion states is 20 and two recently adopting states are Alaska and Montana as of November 2015. The study exploits the change in health insurance eligibility vis-à-vis the federal poverty level. Using a quasi-experimental design, I show that the reform has had no immediate impact on labor force participation, retirement, or self-employment. The model, however, reveals that the Medicaid expansion has had a positive significant effect on part-time employment whereas the effect is negative for working hours and weekly earnings. This result suggests that there is a trade-off between full-time and part-time employment resulting from the reform, although labor supply is not directly affected. In addition, the estimates are robust to both parametric and nonparametric specification. 

Keywords: Medicaid expansion, Affordable Care Act, health care reform, labor market, part-time employment

JEL Codes: C21, J21, J26, I10