The Impact of Expanding Medicaid on Health Insurance Coverage and Labor Market Outcomes

Health insurance in the United States is closely linked with employment, primarily through employer-sponsored insurance (ESI).  As a result, expansions of public health insurance have the potential to reduce the uninsured rate, but also to reduce coverage through ESI, reduce labor supply, and increase job mobility.  In this paper, we examine whether the expansion of Medicaid to nonelderly adults as part of the Affordable Care Act (ACA) increased health insurance coverage, crowded-out ESI, and influenced labor market outcomes.

In January 2014, twenty five states expanded Medicaid to low-income parents and childless adults.  Prior to the expansion in 2014, only low-income children, parents with dependent children, the elderly, or individual with disabilities were eligible for Medicaid.  Among the states expanding Medicaid, the median eligibility threshold increased to 138 percent of federal poverty guidelines for childless adults and parents.  Since previous studies have focused on traditional Medicaid beneficiaries, little is known about how childless adults respond to public health insurance eligibility.  Most previous research on this demographic group focuses on one state; in contrast, we examine a much larger expansion of Medicaid that occurred in half of all states.

To understand the impact of the recent expansion of Medicaid on the labor market, we first examine the impact on health insurance coverage and the type of insurance.  Using data from the 2011-2015 Current Population Survey (CPS) Annual Social and Economic (March) Supplements and a difference-in-differences specification, we compare the changes in insurance coverage over time of adults in states that expand Medicaid and in states that did not for both childless adults and parents with dependent children.  We focus our analysis primarily on individuals with income below 100% of the poverty guidelines, since these individuals are not eligible for subsidies on the insurance exchanges in states that did not expand Medicaid.  Our estimates suggest that the recent expansion significantly increased Medicaid coverage by 5.7 percentage points for childless adults with little decrease in ESI and an overall decrease in the uninsured rate of 5.2 percentage points. 

Using data from both the 2011-2015 March CPS Supplements and the Basic Monthly CPS, we find that the expansion of Medicaid through the ACA did not impact labor market outcomes, including labor force participation, employment, hours worked, or total earnings.  These results are robust to a variety of alternate specifications and we show that the trends in labor market outcomes are parallel prior to 2014 in states that expand Medicaid and in states that do not.  Thus, our results suggest that the recent expansion of Medicaid reduced the uninsured rate among poor adults without crowding-out ESI and decreasing labor supply.