The Effects of Medicaid Expansion on Labor Market Outcomes: Evidence from Border Counties

The recent Medicaid expansions under the Affordable Care Act (ACA) have substantially increased access to health insurance among low-income individuals. Despite potential cost savings from better access to preventive care by Medicaid recipients, one common argument against the expansion of public insurance is that it may reduce the incentive for eligible individuals to remain in the workforce. Therefore, a correct understanding of the labor market impacts of expanding public insurance programs is important in evaluating the welfare effects of such policies.

We seek to provide new empirical evidence on the effects of the recent Medicaid expansions on labor market outcomes. Unlike most existing studies that conduct the analysis at the state-level (e.g. Leung and Mas, 2016; Kaestner et al, 2015; Frisvold and Jung, 2017), our main analysis is at the county-level, which is a more appropriate approximation for the boundaries of local labor markets. Our identification strategy is based on the comparison of employment and wages in contiguous county-pairs in neighboring states (i.e. border counties) with different Medicaid expansion status. This is similar to the method employed by Dube et al (2010) to study the employment effects of minimum wage laws. Compared to a standard difference-in-differences approach, restricting the analysis to border-county pairs greatly improves the comparability between treatment and control units and controls for spatial heterogeneity, which can confound the relationship between Medicaid expansion status and employment or wages. In particular, our preferred specification uses only within county-pair variation in Medicaid expansion status and allows for arbitrary time effects across county-pairs.

The main data source for our study is the 2008-2016 Quarterly Census of Employment and Wages (QCEW) collected by the Bureau of Labor Statistics (BLS). The QCEW is a comprehensive census of all establishments that report to the Unemployment Insurance programs, which contains about 97% of civilian employment nationwide. In contrast to other popular datasets such as the CPS or ACS, the QCEW allows the measurement of changes in employment and wages over time at the county-level.

We estimate a set of distributed lag models which allow us to examine the dynamic effects of the Medicaid expansions. All of our models include controls for effective minimum wage, county population, state poverty rate, and state median household income. Consistent with previous studies, we do not find any statistically significant effects on either employment or wages when estimating a conventional county and year fixed effects on the full sample. However, in our border county-pair sample we find a small but statistically significant decrease in employment of between 1.2-1.5 percent one year after the implementation of the Medicaid expansions, but no statistically significant change in wages. Overall, our results suggest that the ACA Medicaid expansions had a modest effect on labor supply at the extensive margin. These findings contribute to the growing literature on the impact of public insurance programs on labor market outcomes.